My name is Simon Mander, and I'm the CEO of Metro Performance Glass, and with me is our CFO, Brent Mealings. This morning, we'll provide you with an overview of the group's results for the six months to the 30th of September 2022, and we'll then be happy to take any questions. Moving now to slide two, we've noted four key messages which summarize the year. I'd like to start by noting challenging market conditions faced in the first half, particularly in New Zealand. We've been focused on our customers, recovering of our gross margins, and preparing the business for the expected increase in Low-E glass production as a result of introduced building code changes. The series of price increases we've introduced are beginning to show in our margins from the second quarter, and we expect this to continue through the second half.
Australian Glass Group delivered on its turnaround plan, achieving a significantly improved performance driven by solid demand and price increases. Our net debt has increased in the first half, primarily driven by an increase in working capital due to ongoing supply chain disruption, higher value inventory, and debtors. We also commenced a cost out program. I'll expand on this program of initiatives later in the session. Moving to our key financial results for the first half on slide three. Group EBIT of NZD 5.6 million was an increase of 78% on the prior comparable period, driven by a full trading period without a lockdown and significant price increases in both New Zealand and Australia. Net debt increased from the full year to NZD 59.1 million, driven by working capital requirements. Our leverage ratio remains consistent with the full-year result at 3.8x .
During the period, Metro Glass concluded an additional year extension on its current syndicated banking facilities out to the end of October 2024. On slide four, New Zealand revenue of NZD 100 million was up 14% versus the previous comparable period, with an EBIT of NZD 3.6 million, down 13%. Q1 was a major contributor to the earnings impact in the first half, with the additional price increases introduced in June and September beginning to recover margins in the second quarter. All of our segments faced disruptions in supply chains, project delays, and people availability challenges that impacted operational efficiency. In spite of this, all segments delivered improved results on the prior year, primarily driven by a full trading period and price increases.
Our focus on continually improving the customer experience continues to reflect in positive levels of customer satisfaction, achieving 7.9 out of 10 in our latest survey in May 2022. Another key milestone is the installation of the new furnace at the Highbrook plant in Auckland. This project has progressed very well and is undergoing its final commissioning phase now. On slide five, in light of the year-on-year decline in volumes and an expectation that further declines are likely later in the new calendar year, Metro Glass is undertaking an organizational review and implemented a series of initiatives across the group to ensure capacity and resources are appropriate to service demand as the cycle changes.
Following recent investments in processing capability and furnace capacity at our Auckland and Christchurch plants, business is now in a position to rationalize its production footprint, and we will cease manufacturing operations in the Bay of Plenty by the end of December 2022. Metro Glass will continue their sales representation, commercial and residential glazing resources, and a retrofit presence in the important Bay of Plenty market. The overall cost out program, including the Bay of Plenty site rationalization, is expected to achieve annualized savings in the New Zealand business in the range of NZD 8 million-NZD 9 million, with benefits occurring from the second half of FY 2023. Regrettably, these changes impact on a number of our people, and we're committed to supporting our impacted team through this period.
On slide six, Australian Glass Group's revenue of AUD 38.2 million was up 32% versus prior year, with an EBIT of AUD 2.6 million, up AUD 3.3 million from the modest loss in the first half of FY 2022. We're also pleased to see solid gross margins in that business. AGG delivered on its turnaround plan, achieving revenue and EBIT targets for first half 2023, supported by stable operating performance and price increases. Pleasing to see that New South Wales business has made a significant turnaround in the half. AGG now enters the next phase of its strategy, having achieved its turnaround, and is well positioned for growth alongside the increasing adoption of double glazing and changes to the National Construction Code, NCC, coming into force in 2023 that will further accelerate its uptake.
I'll now hand over to Brent to discuss the financial results in more detail.
Thanks, Simon. Good morning, everyone. On slide seven, we break our revenue down. In New Zealand you can see an overall increase of 14% as all segments achieved year-on-year improvements. As Simon has already mentioned, we are also happy to see continued improvement in the AGG business. Slide 8 reflects our half year results. Segmental results are on the right-hand side of the page. New Zealand's gross profit margin for the half was impacted by the increase in input costs prior to the scheduled price increases progressively introduced in Q1. In line with expectations, we've begun to see margin improve from Q2. In Australia, gross profit margin almost doubled, in part reflecting the price increase in response to cost inflation pressures, also in recognition of the increasing value of glass throughout the industry. Turning to the group results on the left-hand side of it.
Our net profit after tax increased from NZD 400,000 to NZD 600,000. I'd like to move to the waterfall on slide 9. Movements in New Zealand's EBIT result are shown in gray shading. Our New Zealand EBIT result was NZD 0.5 million lower than the prior year, with higher revenue offset by increased input costs that we were unable to offset by market price increases at the same rate. Increases in distribution and glazing were partly offset by savings elsewhere. Turning to the Australian performance, which is in the green shaded area of the waterfall. The encouraging story here is revenue growth and gross profit— gross margin profit improvements. That has largely offset the inflationary cost pressures. AGG has achieved a solid turnaround and profitability in the half. Heading to the balance sheet slide 10.
Net operating cash flows were significantly below the comparative period, primarily driven by requirements on working capital. Capital expenditure has reduced to NZD 5 million in the first half, with a focus on targeted investments and maintenance capital only. On our net debt points on the slide, we have noted comparisons between the first half of 2022 and the full year 2022. I'd like to focus on comparisons to full year ended 31st of March. Net debt has increased by NZD 6.8 million since March, driven by the working capital requirements and inventory primarily, with our leverage ratio consistent with March 2022 at 3.8x net debt to EBITDA. Back to you, Simon.
Thanks. Turning now to the outlook for FY 2023 on slide 11. The number of residential consents in New Zealand has been running at elevated levels and well above the industry capacity, supporting a stable pipeline of work in the near term. However, we expect that economic headwinds are likely to reduce the number of dwellings actually constructed later in calendar year 2023. Updates to the H1 building code applicable to consents from November 2022 will support an increased demand for higher performing Low-E glass, and this will have positive impacts on gross profit performance. The overall cost out program, including the Bay of Plenty site rationalization, is expected to achieve annualized savings in the New Zealand business in the range of NZD 8 million-NZD 9 million, with benefits accruing from the second half of FY 2023.
Any slowdown in Australian construction activity is likely to be offset by increases in the market penetration of double glazing and accelerated by the upcoming changes to the National Construction Code in 2023. We believe we're very well positioned to meet the requirements and opportunities presented with the upcoming changes in the New Zealand and Australian Building Insulation Regulation code changes. On slide 12. Metro Glass's strategy and focus remain unchanged as we continue to build resilience and defend our leadership position in a competitive New Zealand market, grow profitability of our Australian business, and benefit from increasing demand for double glazing to ensure our balance sheet is strong and sufficient to cope with future risks and opportunities. That brings us to the end of our presentation. We are now happy to answer any questions that you may have. Thank you.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on that phone line will indicate when your line is open. Please state your name before posing your question. Again, if you'd like to ask a question, please press star one on your telephone keypad. Caller, your line is open.
Oh, hi team, Grant Lowe from Jarden. Can you hear me okay?
Yes. Hey, Grant.
Hi there. Great. Just looking at the geographical results, firstly, just in terms of New Zealand, I see gross margins were down, 41.6% versus 44.4% in the first half of last year. Can you give us a sense as to the split quarter-on-quarter? You called out that the second quarter was an improvement on the first. Just trying to understand that momentum coming out into the second half.
As you sort of described, Grant, you know, Q1 was difficult at a gross profit performance level, given the timing of the price increases, which were, you know, beginning of June and the beginning of March.
Yeah.
The one at the beginning of June was 11.75%. You know, it was quite a decent increase. What we've seen is, you know, from Q2 onwards, quite a good improvement in our gross profit.
Yes.
Just seeing that, you know, momentum heading into the second half.
Okay. Is it reasonable to assume that it might be at around the 44% in the second half, or is that?
What percentage did you say?
If you were 44.4% in the first half last year, is that a reasonable assumption going into the second half?
Yeah, I don't think that'd be too far off where we'd be aiming for. Yeah.
Okay. Excellent. In terms of Australia, I understand, if correctly, you know, positive result there, which is great. You've said that any slowdown in construction activity is likely to be increased offset by increases in market penetration and changes in the Code . Are we to looking ahead to any major changes, are we expecting that, you know, earnings might be able to remain at these levels going forward despite the slowdown?
Yes.
Okay. Excellent. around the debts, I think. I guess I was surprised to see that go up by quite so much. In terms of, you know, obviously working capital driving that. In terms of, we think that at the moment is working capital levels sort of a reasonable go-forward basis, or are there— do you expect to see some unwind, either in terms of inventory or receivables in particular?
Grant, the major driver of the, you know, apart from the price increases which obviously have an impact, but the supply chain disruption is still an issue we're having to deal with in terms of our safety levels.
Yes.
We're holding, you know, something like 40% more inventory at the end of September compared to March.
Got it.
You know, so we think that that supply chain disruption starts to settle down in the new year. We see that as an opportunity to, you know, wind that back.
Yeah.
You know, even in recent weeks, you probably have seen the press around the New Zealand ports in particular, and that's probably a Christmas thing as well. We're hopeful that beyond into the new year, we can wind that out.
Yeah. Okay. in terms of that, 40% lift September versus March, is that in dollar values rather than volume?
It's volume.
Volume. Okay. Right. Okay. Yeah. Okay. That's one to watch over time. In terms of the debts facilities, you've called out an extension to the your main facility by a year. Does that still remain at NZD 75 million facility?
The total facility is NZD 80 million.
Okay. Including the overdraft.
Sorry, Grant. What's that?
Is it? I think it was at the. It was NZD 75 million plus NZD 8 million or so of overdraft. It sounds like that's similar.
Yeah. It was the original facility was NZD 75 million plus a standby of NZD 10 million: NZD 85 million.
Got it.
So we've effectively now got a NZD 75 million plus a standby of NZD 5 million.
Okay. Understood. In terms of the organizational review, I appreciate there is still obviously some work to do around that and some sensitivity. Just in terms of making sure I've understood that correctly. The NZD 8 million or NZD 9 million of benefits flowing, is that net of any assumed revenue loss or is that just purely cost saving?
Purely cost saving?
We've shown that purely as cost savings.
Yeah. Okay. In terms of, presumably you mentioned that you're still gonna have fees into the year in terms of the piping and retrofit at Bay of Plenty. There will obviously be some additional costs associated with, you know, pipes down to Bay of Plenty. Can you give us a sense of what that total, yeah, that offset might be?
That's about net, Grant. The NZD 8 million-NZD 9 million would be net of that.
Sorry, say that again.
That would be the net benefit.
Yeah. Okay. Are you able to give any sense of the sort of additional costs that are offset within that net number?
I think, you know, what we're saying is that, you know, if you—w e'd be distributing from Auckland to that customer base, that NZD 8 million-NZD 9 million is inclusive of that.
Yeah.
That's the net number.
Yeah. In terms of I see the note to the accounts, no, not in the accounts, refers to cost, cash cost saving of NZD 34 million associated with the Bay of Plenty manufacturing facility, plus. Is the NZD 8.9 million, that's after depreciation, presumably?
No. That's there's other cost savings across New Zealand that make up the remainder of that.
Yeah.
About half of those cost savings are achieved in the Bay of Plenty.
Got it.
Is across the rest of the business.
Yeah. Just in terms of the way that plays out, Grant, within that sort of NZD 8 million- NZD 9 million, you know, around about NZD 2 million would sit in admin.
Which is related to other cost saving initiatives that we've got focused on. There's, you know, a big chunk of it is obviously going into these other initiatives that we're doing and majority of it sits in the gross profit line under factory costs. It's a fixed cost base play.
Okay. All right. Last one, just around that. In terms of, I mean, you're maintaining your presence there. How do you see the local competition and the risk of revenue loss or is that, you believe you can, you know, continue to service that region, with, without, you know, revenue loss?
You know, look, it's, we're confident that we're able to maintain our revenue there and we're, you know, working with our customers through that. You know, there's risk, but that risk is everywhere. It's, you know, it's a competitive industry. You know, we maintain a very strong presence there. The manufacturing of the product is not there. We already supply, because of the, there's some manufacturing limitations in that plant. We already supply a reasonable amount of the product we sell in that region from outside of the region. You know, we're quite—t hen, you know, we deliver, you know, down Rotorua, Taupō way and stuff like that out of our Auckland plant as well as out of that Bay of Plenty plant.
You know, there's always some risk when you do something like this, but on balance, you know, we're confident in what we're doing there. you know, there's some significant benefit likely. And we will still have a very strong presence in the Mount, like we do in our other branch networks that we have around the country in the regional towns.
Okay. Thank you. That's all for me.
No worries.
All right.
Again, if anyone would like to ask a question, please press star one on your telephone keypad. It appears there are no further questions at this time, so I'll turn it back to you for the conference for any additional or closing remarks.
Okay. Well, thanks, everyone. If you have any further questions that you think of later, don't hesitate to contact us. Thank you.