Good morning, everyone, and thank you for joining us today. This is David Gallop, and I am Chair of Step One Clothing Limited. On behalf of the Board of Directors, I am pleased to welcome you to Step One's 2026 Annual General Meeting. It is now just after 10:30 A.M., the nominated time for the AGM. I have been informed by the Company Secretary that a quorum is present, so I am pleased to declare the meeting open. Today's AGM is being held virtually via the online meeting platform. Today, I am joined online by my fellow Directors, Greg Taylor, Founder and Chief Executive Officer, Kate Thompson, Non-Executive Director, and Michael Reddie, Executive Director. Also present today are Nigel Underwood, our Chief Financial Officer, Katie Sutherland, our Company Secretary, Ivana Shariffudin, who is coordinating our Q and A today.
Crystel Gangemi, our Audit and Assurance Partner from Grant Thornton, is also present and available to answer any questions about the audit, the auditor's report, the accounting policies adopted in the financial statements, and the auditor's independence. Our Annual General Meeting is being broadcast from Gadigal land. Our commitment to sustainability and ethical practice is at the core of who we are at Step One. We cannot do this without taking the first step in acknowledging First Peoples. Step One acknowledges the traditional custodians of the land, sky, and waters of First Peoples across the world. We tread respectfully on their countries and honor their continued connection to their culture through many millennia. We acknowledge elders past and present and thank them for providing their guidance and for sharing their knowledge and wisdom. We also acknowledge all First Peoples who have continually paved the way in sustainable practices.
Step One continues to be guided as we learn and grow. The running order for today's meeting is as follows. Firstly, I will say a few words about Step One, including strategic highlights of the Step One business. Then Greg will address the meeting before we proceed to the formal business of the meeting. After the formal business, shareholders will have the opportunity to ask further questions not directly related to the respective resolutions. My address. FY 2026 was a difficult year for Step One. The result was below our original expectations and those of the market at the start of the year. Two factors shaped the year: subdued consumer spending and the strategic reset announced with the FY 2025 result. For several years, Step One sales relied on frequent site-wide promotions. That approach supported volume.
It also risked diluting the brand and the value customers placed on it, and the Board did not consider it sustainable. The reset reduced the depth and frequency of discounting and put more weight on product innovation and the brand's premium positioning. As site-wide discounting was removed, it became clear that sales of older and slower-moving lines had depended on being bundled with newer products at a discount. Without that support, demand for those lines was limited, and in December 2025, the company raised a provision against that inventory. The Board is satisfied that the provision is appropriate for the remaining inventory. For the full year, our revenue was AUD 63.7 million, down 26.7%. The company reported an EBITDA loss of AUD 7.4 million and a net loss after tax of AUD 6.4 million. These results include the impact of the AUD 9.1 million specific inventory provision.
Excluding the movement in that provision and its associated tax effects, adjusted EBITDA was AUD 1.7 million, and adjusted net profit after tax was AUD 0.8 million. The board recognizes what this has meant for shareholders. The share price fell sharply over the year, and no final dividend was declared for FY 2026. We share your disappointment. The board's focus is on restoring sustainable profitability. Strategic reset. The board continues to support the strategic reset. Last year, I said we were confident the reset would set a path to improved margins and renewed growth. Margins improved in the second half, as Greg will outline shortly. However, revenue did not follow. Rebuilding the foundations for sustainable profitable growth without relying on discounting is our key priority for FY 2027. The board will closely monitor progress. Greg will shortly take you through how management is approaching that work. Balance sheet and dividends.
At the 3rd June 2026, Step One held AUD 2.58 million in cash and financial assets and no debt. That position allowed the company to fund its FY 2027 priorities from its own resources. The dividend policy is unchanged. Step One aims to return surplus after-tax earnings to shareholders as dividends franked to the maximum extent possible. The board intends to recommence dividends once retained earnings return to a positive balance, subject to the company's financial position and trading conditions at the time. The board reviews the company's capital position at the end of each reporting period, weighing up the funds needed to support Step One's priorities against the case for returning capital. Board update. In October, Rick Dennis stepped down from the board for personal reasons. Rick joined Step One when we listed in 2021 and chaired the audit and risk committee from that time.
On behalf of the board, I thank him for his contribution and his leadership of the committee. Kate Thompson will chair the audit and risk committee on an interim basis. The board is searching for a new independent non-executive director with financial assurance and risk management expertise. On behalf of the board, I thank Greg and the Step One team for their work through a year of substantial change in how the business operates and markets itself. I also thank my fellow directors for their counsel. The task ahead is to rebuild profit and growth on the strength of the brand rather than on discounting. The board is committed to that outcome. To our shareholders, thank you for your continued support. I will now hand over to Greg.
Thank you, David. Good morning. As David outlined, FY 2026 was a year of significant change for Step One. This morning, I will cover what the reset has shown us about the business and how we are approaching FY 2027. The clearest measure of the reset is how much less often we discount. The number of days our products were on sale fell from 109 to 27. The sale events accounted for 26% of direct revenue compared with 63% the year before. When we do discount, the deepest discounts now only apply to older and slower-moving stock, which protects the value of our core range. That change came at a cost. Direct-to-consumer revenue fell 34.7%, which accounts for the decline in the group revenue David described. Website visits were 17% lower, and a smaller share of those visits turned into orders.
We're working to complete the disposal of the remaining obsolete inventory during the first half of FY 2027. That inventory has already been fully provided for. We've also, while buying into line with the new pattern of demand, opened production orders as of 30 June, 1.3 million, compared with 7 million a year earlier. We have planned the peak season range to ensure our core products remain in stock.
The second half gave us a clear read on the reset. Adjusted gross margin was 79.5% compared with 74.5% the second half of FY 2025. The improvement reflects firmer pricing and fewer promotions. The comparison also reflects the absence of a mid-year sale in FY 2026. Our customer database grew 11.3% in FY 2026 to a record of more than 2.1 million, after we added 215,000 new customers during the year. Bringing more new customers to Step One is a focus for FY 2027.
Much of the work I will cover, from marketplaces to our basketball partnerships, is aimed at people who have not bought the product from us before. We launched six new products in FY 2026 compared with one the year before, and together they contributed 4.3% of revenue. The range now includes men's briefs, socks, sleepwear, a period range, X-Golf, and our CloudPress compression wear. The performance range we developed with NBL players, each of them gives us an existing customer a reason to come back and shop with us. Product development will stay disciplined, and new products have to solve real problems for customers and earn its place commercially. The women's category remains an opportunity for Step One. However, given the challenges of FY 2026, our focus for FY 2027 is on restoring growth and profitability in our core business before committing further resources to expanding that range.
Our marketplaces continue to grow, with indirect revenue led by Amazon up 62.3% to AUD 11.6 million, which represents 18.2% of group revenue. The U.K. held up much better than Australia under the same pricing changes. U.K. revenue was AUD 26.2 million, down 11.1%, compared with a 36.1% decline in Australia. The U.K. now accounts for around 41% of group revenue. During the year, I spent time with our teams in the U.K. and U.S., changing on how we market and brand in each country.
For FY 2027, our focus is on locally relevant content, better conversion, and profitable sales within the existing budget. In the U.S., revenue was AUD 2.5 million, and the business recorded a loss of AUD 3.9 million, including a specific inventory provision of AUD 2.6 million. We are assessing the U.S. business against its progress towards positive contribution, with clear review points and disciplined investment. Talking brand.
Basketball has become a core part of how we build a brand in Australia. We invested more than half a million dollars in the game in FY 2026 from our partnership with the NBL, where Step One is the official compression partner through to junior programs, including Aussie Hoops. The custom team range released at the end of the NBL season sold out in most adult sizes. These partnerships are designed to introduce Step One to new customers, build brand awareness beyond our existing customer base. Our FY 2027 priorities. Our FY 2027 focus is on improving conversion, getting more existing customers to buy socks, CloudPress, and our pajamas, making our advertising work harder. Our priority is not simply to recover sales, but to rebuild a business that can deliver sustainable revenue growth at healthy margins. Our work includes a refreshed brand, a website rebuild, and better customer communications.
Alongside this, we will pursue profitable U.K. and marketplace growth, complete the obsolete stock disposal, and maintain discipline over our U.S. investment. Our peak season starts today with Singles Day and runs through to Christmas. We look forward to reporting back at the first half in February 2027. In closing, Step One turns 10 early next year. Over that time, our customer base has grown past 2 million. FY 2026 showed us plainly where the business needs to improve. As the company's founder and largest shareholder, I am committed to that work and to building value for all shareholders. I thank our team for how quickly we adapted to a different way of selling, David and the board for their backing. To our shareholders, thank you for staying with Step One throughout FY 2026. Thank you.
Thanks, Greg. We will now progress to the formal part of the meeting. Details about how shareholders can participate in the meeting are set out in the notice of meeting, which was distributed to all shareholders and also on the online meeting guide. Both are available on our investor relations website. A poll will be held for all resolutions, and I now formally declare the poll open. Voting for all resolutions will remain open until five minutes after the end of the meeting. You may submit your live vote at any time before then. Results will be published on the ASX after the conclusion of the meeting. At the time each item of business or resolution is considered, I will invite any questions specific to that matter. If you have a question that you would like to ask, there are two ways to do so.
Firstly, for those who wish to ask a question using the online meeting platform, there is an ask a question button located at the top or bottom of your screen that will allow you to type in your question. You may submit written questions this way at any time. You do not need to wait until the relevant item of business, so I encourage you to submit your questions as soon as possible so you have enough time to type your question. Secondly, verbal questions can be asked using the web telephone, which can be accessed by shareholders online by clicking the go to web phone button on the computer screen, entering your name, and then following further prompts. Questions relevant to the business of the meeting will either be read aloud or put to me by the moderator over the phone.
We will seek to address these questions during the discussion of the relevant item of business. If we experience any significant technical issues today, we may adjourn the meeting. If this occurs, I will advise you accordingly to the extent possible, and an ASX announcement will be made. As stated in the notice of meeting, I intend to cast the votes of all open proxies granted to the chair of the meeting in favor of all resolutions.
The first item of business is to receive and consider the financial report, the director's report, and the auditor's report for the financial year ended 30 June 2026. There will be no vote on this item. It is a discussion item only. Crystel Gangemi from Grant Thornton is available to take any questions about the conduct of the audit, the auditor's report, the accounting policies adopted in the financial statements, and the auditor's independence. We would be pleased to deal with any questions you may have in relation to our reports or to the auditor. I will now address any questions on this item. Moderator, are there any questions on the phone?
There are no phone questions at this time.
Are there any questions online?
There are no questions online for this item. Thank you, Chair.
There are no questions. I'll move to the next item of ordinary business. Resolution one relates to the re-election of Mike Reddie as a director of the company. Mike's biography is included in the notice of meeting. The resolution and proxies are set out on the slide. I will now address any questions on this item. Moderator, are there any questions on the phone?
There are no phone questions at this time.
Are there any questions online?
There are no questions online for this item.
There being no further discussion, I now put to the meeting resolution one. Please record your vote online. Our next resolution two, relates to the company's remuneration report for the financial year ended 30th June 2026. The remuneration report is contained in the company's 2026 annual report, available on our investor website. The resolution and proxies are set out on the slide. I will now address any questions on this item. Moderator, are there any questions on the phone?
There are no phone questions at this time.
Are there any questions online?
There are no questions online.
There being no further discussion, I now put to the meeting resolution two. Please record your vote online. I would now like to address any general questions from shareholders. Moderator, are there any questions on the phone?
There are no phone questions at this time.
Are there any questions online?
Yes, there is a question online, Chair. Consumer confidence is poor. Several retailers have commented on consumers downgrading to more value products. At last year's AGM, Greg noted tough conditions, but remained committed to brand building and consumer-reaching advertising. How is Step One looking at marketing expense given the experience in the last 12 months?
Thank you for the question. While the consumer retail market is under pressure, we remain focused on our customer base, our core customer base, and building new customers, but also showing our customers why our products are different and how they differentiate. We've adopted several strategies around this, including bundle pricing to include our additional adjacent products, and focusing on acquiring new customers, not just in Australia, but in our other markets as well. While we continue to monitor the retail conditions, we're confident that our product and product differentiation will continue to resonate and provide value to our customers and continue to grow the business.
Any further questions online?
Yes. The next question, Chair, how are you assessing the success of your brand development and awareness work, considering such significant changes to brand positioning and capital investments into sports?
Thank you for the question. We look at a number of metrics in the way we measure the success of that. Firstly, we look at an overall metric, which is our marketing efficiency ratio, which is a good indicator on how our overall marketing is performing, not just in a digital sense, but also including our advertising across TV, above the line, and our integrations into sport. We then have specific sport products, like our CloudPress, the basketball product. We're able to measure that and the success of that based on customer acquisition costs, brand awareness, brand search, direct traffic, and other ways that we can use the digital space that we work in to clearly and concisely measure the success of those activities.
Are there any further questions online?
Next question is our company planning to be free cash flow positive in FY 2027?
I will take that one, Chair. Yes, we are.
Any further questions?
Next question is, how are the six newly introduced products resonating with customers?
Sorry, can you repeat the question?
Yes, of course. How are the six newly introduced products resonating with customers?
We introduced those in the back half of last year, and there's clearly a range of products. The reason we introduced those products is they were natural adjacencies to our underwear, socks, our sleepwear, and also the compression wear I mentioned earlier. The way that we look at how we measure these customers is two ways. Firstly, is the percent of what our database is converted over to our new products, and then how we're using those new products to acquire new customers, and also use those as an AOV upsell in terms of including these within the bundle packs to include those with underwear and socks, and underwear are a natural purchase.
So far, we've had good success with the earlier products. We've sold out of products earlier on, so we've been very mindful about the volume, volumetrically, how much we order. We're taking a very measured approach to that to ensure that we're having enough stock on hand, but also ensuring that we're also selling through that stock and those product adjacencies.
Any further questions online?
No more questions online. Thank you, Chair.
Okay. If there are any further queries following the meeting, I encourage you to send them to our investor email address on our website. That concludes the business of the meeting. I now declare the 2026 AGM for Step One Clothing closed. Thank you for attending today and for your continued support. Shareholders and proxy holders will have five minutes from now to complete their voting. Please cast your vote now if you haven't already done so. The results of votes will be announced via ASX as soon as possible following the conclusion of the meeting. Thanks again, everyone.