Waa Waa, everyone. Waa Waa meaning hello in Taungurung language. My name is Rikki-Lee, and I've been a part of the Reece family for 10 years, working within the credit team. I'm also a proud member of the RAP working group. I live on Bunurong land, which is the land of the Seawater People. Today, I'm standing on the land of the Wurundjeri people. My mother is a proud Taungurung woman, and my dad is a proud Australian man who is also proud of his Irish heritage. I continue to learn every day about my culture and my ancestors, so I'm able to pass this knowledge on to my children, a culture I want them to be proud of every single day. I'd like to acknowledge everyone who has joined the Reece AGM. Reece is an organization built on its values, and they are values I live by each day.
Now more than ever is a time we must stay true to our commitment for reconciliation and our RAP commitments so that we can achieve real outcomes for our First Nation peoples. I'd like to acknowledge and pay my deep respect to my ancestors and the traditional owners of the land we meet across the nation today, and I extend that to elders past, present, and emerging. Thank you.
Good morning, everyone. My name is Tim Poole, and I am the Chair of the Reece Limited Board. Thank you, Rikki-Lee, for sharing your acknowledgment of country. Rikki-Lee has been a key member of the Reece Australia credit team over the last 10 years and is also an integral member of our Reconciliation Action Plan group. Thank you very much, Rikki-Lee, for doing such a great job and being part of our AGM today. I would also like to acknowledge that the board and I are joining you today on the lands of the Wurundjeri peoples of the Kulin Nation, and I extend my respects to the traditional owners, to their elders, and to Aboriginal and Torres Strait Islander peoples joining us today. I'm advised a quorum of members is present, and I declare the 2023 Reece Annual General Meeting open.
I will now introduce the members of the Reece board. Our directors, Alan Wilson, Bruce Wilson, Megan Quinn, and Andrew Wilson, and they are joined by our Group CFO, Andy Young, and our departing Group CFO, Andrew Cowlishaw. In the studio with me today are Peter Wilson, our Group CEO, and Chantelle Duffy, our Company Secretary. I would also like to welcome our audit partners from KPMG, Julie Carey and Simon Dubois, who are available to answer questions on the audit of the company's financial report for the year ended 30 June 2023, and the content of the audit report. I'd now like to take you through the procedural matters for today. Our AGM is online, and the instructions to access and use the online platform are contained in the notice of meeting, which is available on our website.
The notice of meeting also sets out the agenda for today and the explanatory notes. The resolutions before today's AGM will be decided by a poll. Miss Angela Lapis from Computershare, Reece's share registry, is the Returning Officer for our meeting today. I now declare voting on all items of business open. If you are eligible to vote, please press the voting icon, and all resolutions will be activated. To make your vote, simply select an option, For, Against, or Abstain. You will receive a vote confirmation notification on your screen. You can vote on all resolutions or change your vote at any time during the proceedings, until I declare that voting is closed. Questions can be submitted at any time, and we will address them after tabling the resolutions and before voting is closed.
To ask a question, select the Q&A icon and type your question into the text box. Once you are finished typing, please click on the arrow symbol to send the question in. Questions can also be asked verbally by following the instructions in the platform, where a telephone number will be provided. Please also note, if we receive multiple questions on one topic, we may consolidate them into one question. If you have any difficulties voting or submitting questions, please consult the online meeting guide, which can be found in the platform, or refer to the notice of meeting or the Reece Group investor website. Now turning to my address. Reece has continued to execute its long-term growth strategy and delivered a strong result in the 2023 Financial Year.
Sales revenue was up 16% to AUD 8.8 billion, driven by product price inflation and moderating demand across all markets. Normalized EBITDA was up 16% to AUD 975 million, and statutory net profit after tax decreased 1% to AUD 388 million, noting adjusted net profit after tax increased 11% to AUD 405 million. The board declared a final dividend of AUD 0.17 per share, fully franked, taking the total dividends for the 2023 Financial Year to AUD 0.25 per share, fully franked. I'd like to take this opportunity to thank all our employees in Australia, New Zealand, and the U.S. for their resilience, commitment, and contribution in what was, again, another extraordinary year....
I would also like to thank and recognize our Group CEO, Peter Wilson, and his senior leadership team for continuing to execute Reece's long-term strategy and maintaining their focus on our customers. Since speaking to you last year, we have announced Peter's long-term commitment to leading Reece. Peter will move to become the Executive Chair of the Reece Limited Board in coming years. In the interim, I've accepted the role of Chair of the Board. Many of the best family-controlled businesses around the world adopt a different model that allows them to benefit from the long-term view that intergenerational leadership enables. We believe Peter becoming Executive Chair in the future is the right solution for Reece. It allows Peter to continue to play an active role in leading the business for many years to come, provide stability and continuity, and will protect Reece's strong customer-focused model.
We are committed to expanding the board in due course with an additional independent, non-executive director who will chair our Audit and Risk Committee. Our long-term approach has shown we can manage through economic cycles. We will continue to focus on serving our customers, delivering our 2030 strategy, and our vision to be the trade's most valuable partner. I will now hand over to our Group CEO, Peter Wilson, who will take you through the highlights of the 2023 Financial Year and provide an update on trading during the first quarter of the 2024 Financial Year.
Well, good morning, and thank you for joining us today for our 2023 AGM. Today, we're gonna take you through an overview of our strategy and our operational highlights for the year, a recap on the FY 2023 performance, and an update on Q1 trading for FY 2024. As we've outlined previously, our blueprint guides what we do across all areas of our business. We are a purpose and values-led organization, and our 2030 vision is to be our trade's most valuable partner. Our three strategic priorities help bring our vision to life, and each of these elements come together to help us deliver on our promise of customized service. We've made good progress operationally in FY 2023. After a couple of years of trading at peak levels, we took the opportunity to go back to basics by focusing on our customers and our people.
We doubled down on core programs like selling skills, which are fundamental to our business and enable the continued success of the Reece model. We also continued to focus on attracting and retaining talent and rolling out new development programs, and you'll hear a little more about this later in a session when we share a video on our U.S. graduate program. We've maintained our focus on strengthening our customer service proposition, both for today and for the future. Turning to our network, we now have over 850 branches across three countries. In ANZ, our network density remains a competitive advantage, enabling our market-leading position and helping us to deliver our promise of customized service. We've continued to invest in the network during the year, opening nine new branches, acquiring three, and completing 21 refurbishments.
In the US, we continue to upgrade and improve our existing network and roll out new branches in refreshed formats. This year, we opened 15 new branches, and we refurbished 10 with a very positive customer response. We also made a strategic acquisition of a small 12-branch refrigeration wholesaler in Texas, and we continue to see a sustainable rate of growth, being around 10-15 branches per year in the U.S.. And finally, we began rolling out the Reece brand, with our California network now trading as Reece and the rollout progressing across other states. It's worth taking a moment to reflect on our journey so far in the U.S.. Since we acquired Morsco five years ago, the team have systematically begun to uplift all aspects of the business, and some of this is visible.
Physical upgrades of branches and the expansion of our network and the rolling out of the Reece brand. But equally important is hiring, training, and developing a team who understand and embody the Reece way and who are ready to deliver our customer promise. We've more than doubled our senior branch team, who are setting the standard for serving our customers every day. There is still a long way to go, but five years in, we feel we are making good progress. Now turning to look at our financial performance in FY 2023. We achieved sales revenue of AUD 8.8 billion and adjusted EBIT of AUD 668 million, a result we are really proud of in the context of the ongoing macro challenges. Over the past five years, we've continued to benefit from our long-term lens and disciplined operational culture.
This has helped us to increase our return on capital employed by 200 basis points to 15.3% this year, which is the highest level since the acquisition of our U.S. business in 2018. Turning to look at FY 2023 in more detail. As I've mentioned, sales were up 16% to AUD 8.8 billion, and 11% on a constant currency basis. In ANZ, sales were up 10% to AUD 3.9 billion, and the U.S. sales were up 12% to $3.3 billion in US dollars. In both markets, we saw product inflation and demand moderate throughout the year as conditions in our end markets became more challenging. Adjusted EBIT increased 19% to AUD 668 million for the year, and adjusted net profit after tax was up 11% to AUD 405 million dollars.
We closed the year with a strong balance sheet, with net debt down to AUD 725 million and our net leverage ratio under 1x. The board declared a total dividend in FY 2023 of AUD 0.25 per share. Moving now to an update of the first quarter of trading for FY 2024. Q1 sales for the group were up 3% to AUD 2.4 billion and up 1% on a constant currency basis. ANZ were up 3%, with inflation continuing to moderate, but broadly in line with the fourth quarter of FY 2023. We also saw residential backlogs and project activity supporting trade slightly ahead of our expectations. In the U.S., sales were flat on a U.S. dollar basis, and this was impacted, as expected, by the slowdown in residential end market demand and a reduction in product cost inflation.
Combined Q1 performance is slightly better than we had anticipated, but the outlook remains challenging in the second half. We do expect product inflation to continue to moderate, and with labor markets still strong, we anticipate cost inflation pressure continuing. And finally, our end markets remain challenging in the current economic setting. Our focus remains on the long term. By delivering our customer promise and continuing to invest, we know we will emerge from a cyclical downturn as a stronger business. In summary, we have delivered another strong FY 2023 and believe we are well placed to continue managing a softening external environment. As ever, we will maintain our long-term focus and continue investing to deliver our 2030 vision. Thank you for your time, and I'll now hand you back to Tim.
At Reece, our purpose is to improve the lives of our customers and our people by striving for greatness every day. We are a people business, and while lots of companies say this, we really are a people-first organization, and we invest in our people to discover their best and reach their full potential. One of our key cornerstones is the Impact Program. Impact graduates become one of our main talent pipelines and often move into leadership positions within our vast branch network and support center roles.
If you don't know what you wanna do or you do know you wanna do something in plumbing, HVAC, waterworks, whatever it may be, Reece is the company that you would wanna start out with.
If you wanna join a company that's determined to see you succeed, you should come join the Impact Program.
If you really want a way to fast-track your career, there's not a lot of companies in the world that have an opportunity like the Impact Program, where you can go right into a branch right away, and after 18 months, gain so much skill and so much knowledge in a short period of time.
You're gonna step into an industry that you've never known, maybe never even heard of, but you have a group of people teaching you the whole way, holding your hand and making sure that you are successful because they genuinely want you to be successful.
This job has given me leadership skills, communication skills, and all-around life skills that I don't think I would have gotten at any other job.
Currently, I'm the branch manager of the Alamo Downs location here in San Antonio for the HVAC division. So the opportunities are there, and if you want more than what you're offered, all you have to do is ask the right questions and see what other opportunities there are.
That's enticing for me as an individual coming in, wanting to start my career at a company. It's exciting to know that there's gonna be a place for me, and if I work my butt off, I'm gonna have a seat at the table. I'm gonna have a branch. I can work my way up to that.
Thanks, Peter. As I mentioned at the start of the meeting, voting on the resolutions is currently open, and you can vote at any time until voting is declared closed. A reminder that only shareholders, proxy holders, or authorized shareholder representatives may vote. We will now move to the formal business of the meeting. The first item of business is to receive and consider the financial statements for the company and its controlled entities, together with the directors' report and independent auditors' report for the year ended 30 June 2023. These statements and reports are now tabled. There is no resolution from shareholders required for this item. The second item of business is to adopt the remuneration report.
The directors have prepared a Remuneration Report for the year ended 30 June 2023, and it is included in the Annual Report on pages 36-49. Displayed on the screen are the details of the proxies received in relation to the adoption of the company's 2023 Remuneration Report. I've directed all open, usable votes in favor of this resolution. The third item on the agenda is the re-election of Alan Wilson as a director. Alan retires by rotation in accordance with the company's constitution, and being eligible, offers himself for re-election. I'll now hand over to Alan to say a few words.
Thank you, Tim. I wanted to say a few words about my re-election as a director. I've had 65 years in the plumbing industry, 54 of those years with Reece. I served as Executive Chair for 21 years, and in 2022, I transitioned to Executive Director. I'm really enjoying my new role, as it gives me the time to have more time in the network to help mentor our leaders, people, improve and grow Reece in ANZ and the U.S. I'm feeling fit, healthy, and excited about the future of Reece. I'm committed for the next 3 years, and I thank you in advance for your support.
Thank you, Alan. Displayed on the screen are the details of the proxies received in relation to the re-election of Alan Wilson. The board, with Alan abstaining, is supportive of Alan's re-election. All usable votes will be directed in favor of this resolution. Megan Quinn is also standing for re-election today. Megan also retires by rotation in accordance with the company's constitution and, being eligible, offers herself for re-election. I'll now hand over to Megan to say a few words.
Thank you, Tim, and good morning, everyone. I joined the Reece board in 2017 as a non-executive director, and since that time, Reece has expanded into the U.S. and the business has grown significantly. I very much enjoy the rigor of serving the Reece board with my fellow directors as we support the senior leadership team and international business. I believe that my diverse skill set and experience of the past 30 years put me in good stead to make a valuable contribution to Reece Group. My career started in advertising, where my first client was a hardware chain, and I've since worked across hemispheres, disciplines, and sectors, building expertise in customer service and experience, innovation, digital and business transformation, and creativity.
Having started two businesses, one of which is a globally renowned business with a market cap of over EUR 6 billion, I appreciate the importance and value of exemplary customer service, branding, good supplier and stakeholder relationships, logistics, sustainability, trust, continuous improvement, agility, and measured risk. I enjoy the rigor of working and learning and feel that that combination of my past international experiences and my current work ensures continued relevance and contemporary thinking in my role. I understand the nuances of global businesses, and I have the commitment and capacity to dedicate the time being a non-executive director of Reece deserves. With your approval, I very much look forward to supporting the writing of the next chapter of this great Australian company. Thank you very much.
Thank you, Megan. Once again, displayed on the screen are the details of the proxies received in relation to the re-election of Megan. The board, with Megan abstaining, is supportive of Megan's re-election. All open, usable votes will again be directed in favor of this resolution. The last item on the agenda relates to the equity grant of 248,227 Performance Rights to our Group CEO, Peter Wilson. The board is committed to rewarding and retaining Peter as he continues to deliver outstanding company results. We believe that part of the reward for Peter's service to the company should be performance-based, at risk, and involve equity interest in the company. Peter has served as the Group CEO since January 1, 2008, and during this time has continued to transform and grow Reece, both organically and via acquisition.
The Remuneration Committee has undertaken a review of Peter's remuneration package to ensure it remains fit for purpose, aligned to market practice, and reflects the desire to incentivize Peter to deliver long-term sustainable growth for Reece. As explained in the notice of meeting on pages 7- 10, these performance rights will be granted in accordance with the terms and conditions of the company's long-term incentive plan. It is proposed that Peter be granted 248,227 performance rights. This is calculated by dividing AUD 4.9 million, being 200% of Peter's fixed remuneration, by AUD 19.74, which is the 15-day volume average price of the Reece shares from the 23rd of August 2023.
The board, with Peter abstaining, considers the grant of performance rights to the Group CEO appropriate in all the circumstances and recommends that shareholders vote in favor of the grant. Once again, displayed on the screen are the details of the proxies received in relation to the grant of performance rights to Peter Wilson. Again, all open, usable votes will be directed in favor of this resolution. We will now open the meeting to all members to ask questions or make any comments on the management of the company. I'll now hand over to Chantelle to ask the first question.
Thanks, Tim. The first question is from Ray: The U.S. net profit margin has increased from the initial 4%- 5%+. Any idea if you can get it up to ANZ levels over time?
Peter, do you want to deal with that question?
Yes. Tim, thanks, Ray. I think we've been consistent since we did the acquisition back in 2018, that the US is structurally really different to Australia. So, I can't see, not in my lifetime, I can't see the Australian margins being replicated in the U.S. For starters, our size and scale is a lot different. The manufacturing base, they've got a very strong manufacturing base in the U.S., strong brands, so there's a different balance of power there. And so obviously, over time, we're endeavoring to improve the business, improve the model, and, you know, the model is to maximize our margins. But I can't see in my lifetime that we'll be at the ANZ margins, sorry. So, it's structurally very different.
Thanks, Peter. Chantelle, ne xt question.
The next question is from Mr. Stephen Mayne . Very few ASX 200 companies are doing fully virtual meetings in 2023, partly because this is not allowed by their constitution, and partly because best practice is to allow shareholders to engage with boards face-to-face. Could you please comment on whether Reece will embrace the hybrid format at their 2024 AGM? As a business which deals with customers face-to-face every day, surely it's not too hard to invite shareholders to a physical meeting once a year.
Chantelle, given you've been integral to the planning for today's AGM, do you wanna have a first go at that question?
Okay. Thank you, Steven, for the question. We believe that the virtual AGM provides the widest access for all of our shareholders, no matter where they're located, particularly those outside Melbourne. And on the balance, and considering the cost as well, we don't feel the hybrid approach is right for Reece or its shareholders this year. But we do remain open to different formats and best practice as it emerges in the future.
Thanks, Chantelle. And I think it's important to add, Steven, that we will continue to review the matter, as Chantelle said, and do what's in the best interests of Reece. Thanks, Chantelle. Next question.
The next question is from the Australian Shareholders Association. Your business risk includes IT resilience and data privacy. Given the cybercrime issues that arose in Australian companies in 2022, what oversight does the board have over the appropriateness of mitigation activities? And are you completely satisfied that cybercrime is being given the attention required?
Yeah, so maybe I'll deal with that, both from a board and also from an audit and risk committee perspective. The topic of cyber risk and IT resilience and privacy of our data is an issue that we deal with both at the board level and also at the audit and risk committee on a very regular basis. As you can imagine, over the last two to three years, the volume of meetings and sessions we have on that topic has increased, and also the intensity around that topic has also increased. So it's certainly getting very significant attention, both at the board level and also at the audit and risk committee level. So I'm very confident we're doing all that we can.
Can we be confident as an organization that you can completely eliminate that risk? No, you can't. It's a risk that, you know, exists for all companies. Some are obviously have a higher risk profile than others. But it is a risk that you can't eliminate fully, but we are very confident that we're doing everything we can to minimize that risk. Chantelle, next question.
The next question is from Mr. Steven Main. Could Tim Poole comment as to whether he ever intends to serve on this board again in a role other than chair? And when are we likely to see his departure from the role so that CEO Peter Wilson can take over as Executive Chair? The vague timeline today, citing coming years, is most unusual.
Yeah, thanks, Steven, for the question. And look, the terminology that we've used so far is purposely vague, because we're uncertain about the timeframe. We'll know when it's the right time. And again, coming back to, you know, our guiding star, which is what's in the best interests of Reece, that will be our test for when we do make the change from, you know, from myself to, to Peter. And we'll know when that time's right. So, you know, we're not gonna be more certain than that at this stage. We'll just do it at the right time for the company and when we're ready. In terms of my own role, look, that's something that Peter and I haven't discussed, and the full Board haven't discussed yet.
So again, at the time we make the change, we'll sit down and have an adult conversation about that, and we'll let the market know then. Thanks, Chantelle. Next question.
The next question is from the Australian Shareholders Association. Firstly, might I congratulate Mr. Poole on your confirmation as chair of Reece. At last year's AGM, and in this year's corporate governance report, you indicated a desire to appoint more independent and diverse directors. How is this progressing?
Yeah, again, thank you for the question. Look, the search is progressing. We probably, in all honesty, would have liked to have made a little more progress, by now. But as we've talked about in my address, you know, over the last 12 months, we've spent a considerable amount of time going through the chair process and working out who would be the next long-term chair of Reece. We've obviously announced that, so we've got certainty around that, and we can also now talk to external candidates about what the long-term, you know, future leadership of our board will be.
That's allowed us now to go out to the external market and talk to candidates more fulsomely about the opportunity, so we've been doing that over the last six months or so. We have made very good progress, and we're confident that we'll be able to make an announcement in the near future around the next chair of our audit and risk committee, which we're really excited about. Chantelle?
The next question is from the Australian Shareholders Association: I note that reported shareholdings of independent directors. Does Reece have a policy regarding shareholding of directors, as it is common in Australian companies?
... Thanks, Chantelle. And look, it is, I completely understand that it is common practice to have a policy. And we certainly encourage directors to have shareholdings, which is, again, common in most large ASX companies. We don't have an actual policy of requiring directors to have shares. And, you know, those policies tend to be driven around making sure there's alignment between the board and the shareholder outcome. When you consider the Wilson family shareholding, and the strong representation of Wilson family members around the board table, I don't think you could get a company in the ASX that's got stronger alignment between the board and the shareholder outcome. So we've talked about that as an issue. We don't think we need an actual policy.
We think we've got massive alignment around our board table, as I say. So I think we're dealing with that issue, quite appropriately. Thanks, Chantelle.
The next question is from Mr. Steven Main. Could Alan Wilson please comment on why he believes his son should become executive CEO, a position he held for decades? After 14 months with Tim Poole in the job, why not just continue with that model? Also, what is the likely timeframe for Alan moving to a non-executive role, and does he intend to stand for the board again when his current term expires in 2026, assuming he is reelected today?
Thanks, Steven. And look, as the current chair of the company, I think that's a set of questions that's probably best dealt with by myself. Firstly, in relation to Alan moving to a non-executive director, well, that's actually happened. Alan is a non-executive director of the business. He still retains a consulting contract with the business. He's still massively involved in the business. Alan would probably work at least four days a week in the business. He's very engaged in the business. He's just come back from his second trip this year to the U.S.. So Alan is, you know, very active, as I say, in the business. We're not gonna comment about what happens at the end of his next three-year term. If...
Once he gets reelected today, that'll be something that Alan will consider, and the board will consider in three years' time. But as it stands at the moment, Alan is highly engaged. You know, the Australian business love having him in the network. On his two trips to the U.S., the U.S. team have loved having him participate in a range of activities, including a very significant management conference on his last visit. So Alan's playing a really important role in the business and will continue to do so. In relation to the model that we've announced with Peter taking over as Executive Chair, that's been a whole-of-board discussion. There's probably not a board issue that's had more attention from us in the last 12 months since the last AGM.
The whole board is very supportive of the model that we're gonna continue with. And I think, you know, the final thing I'd say is, let's look at, you know, the scoreboard. The scoreboard with Alan as Executive Chair has been, you know, very successful for shareholders, and we're very confident with Peter, with retaining Peter in the business and having that ex-Executive Chair role in, will be a similarly highly successful period for Reece. So we're really confident about that model. Peter, I'm not sure if there's anything you want to add in terms of some of your experiences with some of the overseas companies?
The only thing I'd add, Steven, is that, look, as you know, that's, I mean, Reece is definitely a unique company with a unique structure, particularly in this country. Increasingly, the business is gonna grow and pivot more and more to the U.S. And so, the structure that we're gonna go towards is fairly common in big family-controlled businesses in both the U.S. and Europe. So we've got a lot of inspiration from that, and I think, ultimately, that's, that was really the only other part to add to that point.
And then in relation to the earlier question on my dad, I think, Steven, just to add that having my dad around actually allows us to keep innovating and changing, 'cause it creates a level of comfort for the people in the business that have served a long time. So in a way, it allows us to be innovative, even though he's turning 83 this year, he's still got a lot of energy. So it actually is a great model. So the people love having him around.
Thanks, Peter. Chantelle, next question.
The next question is from the Australian Shareholders Association: Your U.S. business now provides a significant proportion of the group's profit, EBIT. In assessing the outcome of financial performance targets for executive incentives, do you take into account the significant impact of exchange rate changes?
Yeah. Thanks, Chantelle. So, in relation to the incentive schemes for the U.S. executives, so they're obviously running a U.S. dollar business, and they're assessed against the U.S. dollar scorecard, which includes U.S. dollar metrics. In relation to the group executives, they're assessed on an AUD basis, so on the basis of, you know, once it's converted back to Australian dollars. We think that's the right outcome at the moment. On the long term, we understand that, you know, from year to year, there might be some impact because of exchange rate, but, you know, if you take it over the long term, you know, those sort of things tend to wash out. Chantelle, next question.
The next question is from Mr. Steven Main: Shareholders are used to only hearing from Alan and Peter Wilson. Could the other two Wilsons on the board comment on why they believe we should only have the model of having an independent chair as a temporary measure? Also, when addressing the meeting, could Andrew and Bruce clarify how the family determines its voting position at AGMs? Is there a separate family meeting to determine the family vote?
Yeah, look, again, I think I'm gonna take that question, Steven, and I think we've answered the question in relation to, you know, why the executive chair structure is the right model for Reece. So I don't propose to go, you know, over that ground again. And in relation to the family shareholding, again, that's a private matter for the Wilson family in terms of the way they determine, you know, their voting on resolutions of the board. We don't ask other shareholders how they go about it. We understand how some of them go about it, including some of our institutional shareholders, but, you know, we don't propose at a Reece meeting to talk about the way a family constructs themselves and organizes their voting.
Chantelle?
The next question is from Mr. Steven Main. "Shares worth AUD 572 million were voted against Alan Wilson's re-election in the proxies. Clearly, there is some discontent from independent shareholders. Which of the proxy advisors and major institutional shareholders recommended and voted against Alan today, and are we going to heed any message from this?
Yeah, so look, we don't, at this stage, have any visibility on which of the shareholders voted for or against any of the resolutions. We'll do some analysis on that, post the AGM, as is our normal practice. The other thing I think I'd like to say in relation to this question is, when you, when you actually consider it against the whole register of Reece, I think the vote against Alan's re-election is around 5% of the register. So when you consider it in the context of the broader shareholding, it's still a very small quantum. And, you know, shareholders, it's, it's, it's... You know, one of the great things about AGMs is it's democracy. Shareholders are allowed to have their views.
You know, a very significant number have voted for Alan. As we've said across other questions, we think he's adding a tremendous amount to our board and also our company, and we see him as a key part of our of the next three years. Chantelle?
The next question is from the Australian Shareholders Association: "We are disappointed that you are running your AGM by putting all resolutions followed by questions on all items. We find this way of running AGMs is not helpful to discussion and debate, and prefer AGMs to be run following the agenda, with questions following each resolution. Would you consider this for a future meeting?
Yeah, look, that's interesting feedback. I actually had at an AGM a few weeks ago exactly the reverse feedback. I was actually asked why we have questions in relation to each resolution. Why don't we wait and deal with all the questions at the end? So you're now giving me the opposite version of that. And look, we appreciate the feedback. We welcome the feedback. Our process is, post an AGM like this, we'll take away all of the feedback, including some of the other feedback we get online and in written form in advance of the meeting. We'll take away that, we'll study it, and then we'll make decisions about the format of the AGM next year.
I thank you for the feedback, and we'll, we'll consider it for how we construct things next year. Chantelle?
The next question is from Mr. Steven Main: "Will a full webcast of today's AGM be published on the Reece website into the future so that shareholders who missed the debate can keep up with the debate? Any chances you could add a transcript to match best practice? JB Hi-Fi is having their AGM right now, and they started publishing a transcript last year.
Yeah, again, we have already published our chair and CEO addresses and our Q1 sales update on the ASX platform. Again, we'll consider at the end of the meeting what information we put up on our website so that people can view some or all components of the AGM. What we tend to do is try and package it up so it's useful and so it's relevant. And again, we'll take that feedback on and consider, you know, what elements that we think the market would be keen to look at down the track. And we'll package that up and put something on our website, as is our historic practice. Thanks, Chantelle.
The next question is from Miles: "You took on quite a bit of debt to expand in the U.S. What debt levels are you comfortable with in the medium term, given higher funding costs?
Yeah, look, we did take on quite a bit of debt at the time of the acquisition. And our debt to EBITDA ratio was approaching around 3x or close to 3x. You know, as Peter said, as part of his presentation earlier, and as part of our full year reporting package, our debt is now just under 1x EBITDA. So a much more comfortable level for us, and it's been quite fortuitous. As you say, funding costs have gone up, so it's been quite fortuitous that our debt has come down through the good work of the team. We don't provide any long-term gearing forecast.
It's something that we consider as a group and as a board and a senior management team on a regular basis. You know, we look at what's in front of us in terms of, you know, internal opportunity to spend capital, opportunities to acquire businesses inorganically. So that's something we continue to look at. We don't have a hard and fast rule around gearing. It's just something that we'll look at on an ongoing basis. Peter, I'm not sure whether you, there's anything you want to add to that?
Only to add that, I mean, we obviously, when we started with the U.S., we had to do what we did to get that, that transformational opportunity, and we always said we were going to get into a more comfortable spot. So I, I think you, you've summed it up really well, Tim, and I think, ultimately, we're more comfortable where we are now, but there's still a lot of opportunities out there, and something transformational might come up again. So it, that's why you can't be too fixed with this. But certainly-
Yep.
Under three times is where we're gonna be, Tim.
Thanks, Peter. Chantelle, next question.
The next question is also from Miles: "What are the best opportunities you are seeing in the US market? Where do you see growth coming from over the next few years?
Peter, do you wanna deal with that, given you've been to the US a number of times in recent time?
Yes. Yes. Well, I've just got back on the weekend, so I saw I had to put a bit more makeup on me than usual, Tim, so apparently I was looking tired. But look, the U.S., it's such a big, fragmented market and, I mean, we're in the Sun Belt, so we're in 15 odd states. So we've got some level of scale, but we're really competing against really quite large competitors. I'd like to say they're gorillas in a way. So we're clear on our strategy, both to roll out new stores and where it makes sense, to acquire small, sort of bolt-on acquisitions. So you, whenever you go there, you get really excited. So it is an enormous market and there's a lot of great things.
So I mean, we're well and truly in the biggest market in the world for us, and where we are positioned in the Sun Belt is the place to be as well. So yeah, long term, I mean, I think if you look, it's certainly gonna be more challenging for the next year or two years, depending on how things play out. But I mean, we always take a long-term view. So long term,
Yep
... it's a big market with a lot of opportunity as long as we execute well. But we're only just getting started. We're only five years in, and we've still got a lot of capabilities to build, so we will never be fully happy with where we're at.
Peter, do you wanna talk just about the parallels between the way Reece developed in Australia, you know, state by state, and the way you're thinking about some of the growth and rollout in the U.S.?
Yeah, well, the Australian story was really one that was built from Victoria out. So we, we didn't, we really didn't move out of Victoria until we had a sort of winning proposition and a really strong position in Australia in, in Victoria. Clearly, the U.S. is different because we bought a private equity, and they had acquired businesses in each of these states as a part of a roll-up to then sell. We've got our focus markets where we wanna just build our density, which is clear in the Sun Belt, but you know, our home state really in the U.S. is Texas, and Texas is bigger than Australia. And look, it's amazing what they're doing. The infrastructure, just they are pro-business. It's a really exciting place to be.
But all of the Sun Belt, Georgia, the Carolinas... California's got some challenges because it's not as pro-business as some of the other states. So, we certainly have got our target states where we wanna build density, Tim.
Yep, that's great, Peter. Thank you. Chantelle?
The next question is from William, and the question is: "The ReM Report has a significant number of votes against its adoption. Any comments?
Yeah, maybe a couple of comments. Firstly, just to put it in context that the, you know, for reasons of wanting to make sure we get a true look at what the independent non-Wilson family shareholders are thinking about the ReM Report, we exclude all of the Wilson family votes from the Rem Report. And, you know, there's some debate about whether some could be included and some not. We've just decided to exclude them all, so we get a really good look at what the, you know, the non-family voting is in relation to the Rem Report. There's a couple of... We understand that there's a couple of proxy firms that have recommended a vote against the Rem Report.
We understand that as we've drilled into it, there's been a couple of issues that led to that recommendation of vote against. One was in relation to the quantum of Peter's package as CEO, and the second issue was in relation to the fact that we pay short-term incentives, so bonuses. So the annual bonus that we pay to both executives here in Australia and also in the U.S., they're all paid as cash bonuses in the year that they're in the year that effectively they're earned, so there's no deferral. And in the Australian market, for large ASX-listed companies, there's typically some form of deferral for a year or two of some of that annual bonus payment, either for a year or two into cash or stock.
And we don't have that as a feature of our remuneration model. So they're the two issues that, you know, that we understand that has caused some of the negativity towards our Rem Report vote. I should say that we're still almost 80% in favor, and it's only, you know, circa 20% against. So there's still an overwhelming, you know, support for what we're doing in a remuneration sense, but we will, you know, take on that feedback. The issue that's probably got the most attention, you know, as I've talked to many of our institutional shareholders, is more on the deferral issue. But if I can just step back and say, you know, we completely understand the deferral issue.
We understand that what shareholders, some shareholders, you know, are looking for is that alignment, because when you do defer part of a cash bonus into equity, it theoretically creates an alignment for the executive to the shareholder outcome. So we completely understand the theory behind that. What I would say is, you know, historically, we've felt that, you know, we've got a very high quality team that are very aligned to the long-term best interests of Reece. So historically, we haven't felt we've needed to have that as a feature of our remuneration model. But again, as is our practice, we'll take all that feedback on, we'll consider it, and if we feel we need to make a change in the best long-term interest of Reece, then we'll do it.
If we won't, we'll continue with what we've got. Thanks, Chantelle. Next question.
This one's not a question, it's really more of a comment. It's from, Joan: "I would like to congratulate both Peter and Alan Wilson for their long-term commitment to Reece.
Thanks, Joan. It's a lovely comment. Peter, anything you want to add to that?
No, thanks. Just to say thank you very much, Joan. It's appreciated.
There's no further questions, Tim.
Okay. Can we just check on to see whether we've got any audio questions?
There's also no audio questions.
No audio questions. Okay. As there are no further questions, I'll now move all resolutions. While you complete your voting, we will play a short video sharing some of the Reece Foundation projects from this past year. I would like to advise that voting on all resolutions has now closed. Thank you to everyone who has watched and participated in our meeting today, and also, can I say a very significant thank you to all of the Reece team behind the scenes that have helped put together today. I'm sure you've appreciated the you know, the very slick presentations and you know, there's been a massive team effort putting this together, so thank you to the Reece team for your contribution to today.
I'd also like to note that the results of voting will be reported to the ASX and lodged on our website later today. I declare the meeting closed, and once again, ladies and gentlemen, thank you for your attendance and participation in our meeting today. Thank you.