Adairs Limited (ADH) Earnings Call Transcript & Summary

Welcome to Adairs' 2020 Virtual AGM. Good morning, ladies and gentlemen. My name is Michael Butler, and I'm Chairman of the Board of Directors of Adairs Limited. In response to government restrictions and the potential health risks arising from the COVID-19 pandemic, the Board determined to hold this year's Annual General meeting virtually. Although we're not able to meet in person this year, I'm pleased that we can come together virtually to update you on your company, conduct formal business, listen to any comments you may have and answer your questions. It is now 11:00 a.m., the appointed time for holding Adairs' 2020 Annual General Meeting. I'm advised that a quorum is present, and I therefore have the pleasure in declaring this meeting open. Thank you for attending. Details about how shareholders can participate have been sent out in the notice of meeting and online virtual AGM guide, which has been published on our Investor Relations website. Both documents are also available to view and download at the bottom of your screen. I will go through the technical and procedural matters for the AGM shortly. Please, before proceeding with the formal business of the meeting, I would like to advise that I'm joined today by all of my fellow directors and also all of the senior leadership team, including Ashley Gardner, our Chief Finance Officer. They, like you, are participating virtually. From the Board, we have in attendance, Mark Ronan, an Executive Director, Managing Director and CEO; Michael Cherubino, Executive Director, Property and Business Development; Trent Peterson, Non-Executive Director and Chair of our Remuneration Committee; Kate Spargo, Non-Executive Director and Chair of our Risk Committee; David MacLean, Non-Executive Director; Kiera Grant, Non-Executive Director; Simon West, Non-Executive Director; and Fay Hatzis, our company Secretary. We also have Joanne Lonergan, our engagement partner with the company's auditor, Ernst & Young. Joanne will be available to answer questions on the accounts at the appropriate time. We also welcome the team from the company's share registry, Link Market Services. The agenda for today's meeting is that following my introductory remarks and review of the company's financial performance during FY '20, Mark Ronan, the Managing Director and CEO, will present his report to include an update on year-to-date trading for FY '21 as well as a presentation on the drivers of our future growth. We'll then proceed to the formal business of the meeting, to receive and consider the financial report of the company and then vote on the resolutions. I'll now talk through the procedural matters for this meeting. We're only taking questions from shareholders today or their representatives. [Operator Instructions] You can submit questions at any time. You do not need to wait until the relevant item of business. We encourage you to submit your questions as soon as possible. We'll then seek to address your questions during the discussion on the appropriate item of business. We'll endeavor to answer as many questions from shareholders as we can. Questions sent via the online meeting platform will be moderated to avoid repetition. And if questions are particularly lengthy we may need to summarize them in the interest of time. I ask that all questions be directed to me as Chairman. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, polling on all items is open now. [Operator Instructions] Voting for all resolutions will remain open until 5 minutes after the meeting to provide eligible shareholders with sufficient time to cast their vote. The final outcome of each resolution will be released to the ASX and posted on our website later today once voting has closed and numbers tallied. Any appointed proxy who has been given discretion on how to vote should vote in the same manner. Any appointed proxy that has been directed to vote in a certain manner and has no discretionary votes to cast does not need to vote as those votes will automatically be counted in accordance with those directions. If you experience any difficulty with the online platform, the help line numbers are displayed at the top of your screen. As I wrote in the annual report, FY '20 was something of a watershed year for Adairs. The strength and resilience of our business and our operational and financing level was tested and proven through one of the most challenging retailing periods on record. I'd now like to remind shareholders of the time line of events over the second half of FY '20. Context in which the decisions were made and the impact COVID-19 had on our business are important in reviewing the FY '20 results. On the 21st of February 2020, we released our first half FY '20 results. This showed a commendable performance. Total sales up 8.6% to $178.9 million and like-for-like sales up 6.9% compared to the prior corresponding period. Notably, online sales were up 31.6% and comprised 18% of total group sales. The acquisition of Mocka had been completed, giving the company access to a profitable, pure-play online retailer in a logical adjacency. We also reported that the new DC strategy had been confirmed with the decision to use DHL as the operator and an expectation to commence operation in July 2021. We declared an intention to pay a $0.07 per share fully franked interim dividend. Internally, we felt the business was performing well. We are confident about the future. Almost all of our internal key performance indicators were being satisfied or exceeded. We issued guidance for FY '20 sales in the range of $385 million to $400 million and EBIT in the range of $48 million to $52 million, excluding Mocka transaction costs and AASB 16 adjustments. On the 19th of March, we released a statement to the ASX, updating on the rapidly emerging impact of COVID-19 on consumer sentiment and business outlook. We withdrew our FY '20 sales and earnings guidance, canceled the previously announced interim dividend and advised we were taking action to maintain a strong liquidity position to enable the company to endure the expected adverse impact of COVID-19. All stores and online channels continued to trade. The world had changed for the worse, and the outlook was most uncertain. On the 27th of March 2020, we announced to the ASX that all Australian stores would close from the 29th of March 2020, and all New Zealand stores and Mocka in New Zealand had been required to close from the 24th of March 2020. These actions were driven by health and safety concerns for both our team and customers and coincided with the Australian and New Zealand governments' request for everyone to stay at home other than for essential need. All store staff and the majority of our head office customer support team stood down. The online channels of Adairs and Mocka Australia continued to trade. Directors and all team members that were necessary to sustain the continuing operations volunteered to take significant remuneration and hours of employment reduction. The focus was on preservation of cash and liquidity and operation of our online channel. Rent relief was sought for landlords, and many inventory orders were either deferred or canceled. On the 30th of March 2020, the Australian government announced the JobKeeper program, and we were able to satisfy the program's eligibility conditions, which provided wage support for the majority of our stood-down team. Under the conditions of the JobKeeper program, we received these payments through to the end of September 2020. This was a welcome initiative, and together with the New Zealand wage subsidy payment, Adairs has received $11.3 million of government support in the period to the 30th of June 2020. On the 4th of May 2020, we released a trading update to the ASX and our plan for a staged reopening of stores. Frankly, online sales had exploded during the 5-week store closure period from the 29th of March through to the 3rd of May 2020. Adairs' online sales were up 220% on the prior corresponding period, and Mocka Australia was up 151%. Notably around 30% of its online growth is from customers that were not [ being known ] as loyalty program members or had not previously shopped online at Adairs. As importantly, gross margins were also strong. We announced the staged reopening of stores from the 7th of May, commencing with our larger-format homemaker stores. New in-store safety protocols were also implemented, which included hand sanitizers, customer number limits, contactless payments and social distancing measures. On the 19th of June 2020, we released a further trading update for the period to the 14th of June 2020 and issued group sales guidance for FY '20. This confirmed the strong growth of both Adairs and Mocka's online channels, particularly in the second half of FY '20, and established a group sales guidance for FY '20 of $385 million to $390 million, a remarkable achievement. Despite the closure of all Australia and New Zealand stores for between 5 and 8 weeks, the team now expect that group sales for the full year to be back within the guidance range issued pre-COVID-19 in February 2020. Online was the savior with the 23dedication and resilience of the store team, stand-down and then reopened and performed strongly was wonderful. On the 10th of August 2020, we released to the ASX our unaudited FY '20 result. Headlines with group sales of $388.9 million, group online sales of $124.2 million, being now 31.9% of sales, and underlying group EBIT premarket transaction costs and AASB 16 adjustments of $60.7 million, an outstanding result that comprehensively exceed pre-COVID-19 guidance of $48 million to $52 million issued in February 2020. Net debt at 28th of June 2020 was only $1 million, notwithstanding incremental borrowings of $48 million to fund the Mocka acquisition in December of 2019. Mocka's performance is well ahead of our expectation. Sales and EBIT growth accelerating. It should come as no surprise when you read the remuneration report contained in the 2020 annual report that the team received significant short-term incentives for the period. In striking the level of these payouts, any benefit received by the company from JobKeeper or New Zealand wage subsidy with the acquisition of Mocka is excluded from the performance consideration. A final dividend of $0.11 per share, fully franked, was declared and paid. On the 4th of August, the Victorian government made orders requiring closure of 43 stores in the greater Melbourne area. They remain closed. However, we anticipate them reopening on the 2nd of November and have been trialing a very successful call-and-collect offer from these stores, which Mark will talk to. We've been fortunate. While COVID-19 has caused significant damage to many industries, some of which may take years to fully recover, it is clear that many people continue to shop online, and the home category is front of mind in their shopping. As a leader in this category, one of the best online platforms of any retailer, we benefited significantly from this trend. We expect these benefits will be long lasting as many of our stores -- store-only customers introduced to our online platform for the first time. And of course, we also saw significant numbers of new customers shop with us for the first time. In effect, COVID-19 has accelerated growth in 2 key areas of our business that were already a strategic focus for us: growth in online penetration and the acquisition of new customers. Mark will talk about the significance of both in his address. In light of the lower dividend payout ratio in FY '20, a number of our shareholders have asked if our dividend policy has changed. I can confirm that our dividend policy is to pay out 65% to 80% of our net profit after tax each year has not changed. I can also reassure you that recent changes in accounting standards have very little impact on our reported NPAT, so it will not impact the levels of dividends going forward. In December, we announced the acquisition of Mocka, a highly efficient, vertically integrated, profitable, pure-play online retailer for home and living products operating in Australia and New Zealand. Mocka has performed well since acquisition and during COVID-19 with FY '20 sales and EBIT finishing above our expectation despite low inventory levels during Q4. Mark will provide a further update on FY '21 trading shortly. We also announced the appointment of DHL as our 3PL partner to operate a new purpose-built National Distribution Centre in Melbourne. The NDC is currently being built, and we continue to plan to have it fully operational by about July 2021. We expect this project to deliver $3.5 million in cost savings annually in FY '22. Finally, as has already been communicated to shareholders, this will be my last AGM as a director. I have decided to retire from the Board after having served 5 years as its Non-Executive Chairman. I'm very proud of what we have achieved in that time. And while it's difficult to pick any single highlight in my term, I'm particularly proud of the success we've been able to achieve in developing our online channel from a promising but fledgling business that delivered approximately $12 million of sales in FY '15 to one that produced sales of over $120 million in FY '20 across Adairs and Mocka. Without wanting to take anything away from our stores, which remain a critical and highly profitable element of our omnichannel strategy, it was our online business which allowed us to not just survive but flourish in FY '20, a year in which COVID-19 saw our entire store network closed for between 5 and 8 weeks in the second half. The world is full of online retail, but many of them find achieving a strong earnings margin to be challenge, and therein lies our real strength. Being vertically integrated means we have an exclusive product offering and full control over our supply chain and pricing. It also allows us to be agile and responsive to market changes. These characteristics are not widely shared amongst our competitors. The direct contribution from our online channel, which is after deducting all direct operating costs such as platform licenses and content creation, bank fees, distribution costs, warehouse pick and pack, customer service wages and online marketing other than in-store marketing, has grown from $2 million in FY '15 to more than $42 million in FY '20, including Mocka, and has continued power on in FY '21. The slides you can see show the quarter-by-quarter growth on a last 12 months basis in online sales, online channel contribution, online channel margin and online sales as a percentage of total group sales. This data is unaudited but prepared from the Adairs management account. I present it on a quarterly basis as it shows the relentless rise of the acceptance of Adairs' omnichannel strategy. It is not the company's intention to provide such quarterly data on a regular basis. The magnitude of this achievement by the Adairs team is laudable. In the 12 months to the 30th of September 2020, group online sales have grown by 252%. And the items on online channel contribution in the same period has grown by 342%. Group online sales for the 12 months to 30 September 2020 was 36.7% of total group sales compared to 17.5% for the 12 months ended 30 September 2019. As Mark will explain, we have a very large addressable market opportunity in home and home furnishings, and there remains considerable scope for both the Adairs and Mocka and continue to grow their share of this market as we've done successfully and consistently over recent years. I remain [convinced] this is the right strategy [indiscernible] to continue to deliver growing returns for the benefit of all shareholders for many years to come. In addition to my colleagues on the Board, I'd like to thank you, our shareholders, for the support you've provided to me. I'll now hand over to Mark Ronan, Managing Director and CEO, to present his report. Thank you very much.

Thank you, Michael. Second half of 2020, remember, is the most challenging period COVID-19 impact in the recent economy and forcing businesses to adapt to ever changing but evolving environment. Result made by Adairs and Mocka through this period highlight the resilience of our business model, the hard work of the teams and the strength of our brands. Group sales finished 12.9% higher to a record $389 million despite COVID-19 forcing the [indiscernible] with reopenings occurring progressively through May. While the store closures resulted in total store sales finishing down for the year, like-for-like store sales after adjusting for the closures [indiscernible]. The decline in store sales was more than offset by 110% increase in group online, highlighting our ongoing omnichannel strategy, enabling [us to adapt to changing] circumstances. The improved sales result was accompanied by an improved final gross margin rate for Adairs [indiscernible] finished at 61.4% versus 59.1% in the year prior. This was as a result of the continuation of the sourcing work undertaken by the team in the first half, the deliberate decision to reduce the length and depth of Adairs promotions and supported by the strong customer [indiscernible]. Cost ratios were expected for the foreclosure period. Significant store [ cost reduction ] in April and May, offset partially by higher online [indiscernible]. This culminated in the group delivering a record underlying EBIT of $60.7 million and an impact of $35.3 million, which equates to earnings of $0.21 per share, 17.3% higher than FY '19. Our balance sheet finished in good shape as our strong cash flow meant that despite borrowing $48 million to acquire Mocka in December, we closed the year with net debt of approximately $1 million and comfortably complied with all of our banking covenants. I wanted to take a moment today to acknowledge and thank our suppliers, landlords and business partners who worked closely with us to share the impact of COVID-19. I would also like to acknowledge the Australian and New Zealand governments, whose employment support packages enabled us to maintain the connection with and continue to pay our team members whilst they were stood down. With the 2020 financial year behind us, we find ourselves operating in a continually changing environment. However, 2020 highlighted the strength of our brands and the opportunity available for Adairs as we continue to focus on executing our underlying strategies. The addressable market in Australia is large, and we are a very small player in that market today. As customer preferences change and evolve, our omnichannel business model provides us with the ability to address the entire market, and we have significant opportunities for growth across both channels. Whilst online continues to see new entrants each year, generally focusing on a specific niche or price point, we believe there will continue to be consolidation in the physical retail space. Our strategies are focused on enhancing our omnichannel model, bringing our stores and digital channels closer together and combining this with our product category expansion to enable us to win new customers and increase share of spend from our existing customers. We have successfully achieved this over the past 5 years and have developed a platform that, with additional investment, will allow us to continue to grow into the future. As we consider our future, we have highlighted 5 key drivers of our future growth: our proven and resilient business model, our profitable store formats, our digital transformation, the acquisition of Mocka and our omnichannel supply chain strategy. If I start with first, our business model. The strong brands we own, our vertical supply chain philosophy and our direct-to-consumer store and digital channels allow us to develop and control the expansion of our product offering and customer base. This enables us to be more responsive to changing customer needs through the delivery of exclusive, on-trend products at higher margins. Further, our strong brands, combined with our large and loyal customer base, enables a lower cost of customer acquisition and provides significant opportunity to enhance and build upon our relationships with our customers, to deliver further incremental returns. Whilst omnichannel is important, it is the combination of omnichannel retail with loyalty that truly delivers growth and separates us from other retailers. Adairs is focused on continuing to grow its market share, and the best way to do this is to both grow our customer base and increase our share of spend from our existing customers. Linen Lovers is the program through which we provide value to our members, allowing us to achieve this. The Linen Lovers program today accounts for more than 75% of Adairs sales with members spending 1.5x more per visit than nonmembers. It is important to note that members pay for their membership, which implies an ongoing commitment to shop with Adairs again and highlights the benefit our customers see in the program. Further, the Linen Lovers program allows Adairs the opportunity to enhance our knowledge of the customer and build a more personalized relationship. This was a key asset in bringing customers back into stores through May as we could individually advise customers when their preferred store was going to reopen. As digital marketing and communication becomes the primary way in which we communicate with our customers, the store closure period also provided us with the opportunity to introduce a lot of our store-only customers to our website and shopping online with Adairs for the first time. Growing our omnichannel shoppers is a focus for the business as they historically shop more often and spend more with each purchase than those that only engage via one channel. Our proven and resilient business model is supported by our store network. We firmly believe that the home category is better with stores. They provide our customers with the ability to engage with the products and the team in an environment that allows them to be inspired to create a look that is right for them. Whilst online should provide you with the ability to easily find what you want, it is harder to recreate the experience of discovery that exists as you walk through a physical store. Interacting with the product, our in-store team enhanced this experience through their product knowledge and ability to help customers achieve their vision, providing the opportunity for improved customer conversion, cross-selling and building loyalty to the brand. All of our stores are profitable, and our store formats deliver strong contribution margins. Whilst customer preferences and habits are changing, we have deliberately created a flexible store portfolio with 72% of store leases expiring within 3 years with longer leases attributable to our larger homemaker profit -- more profitable stores. This allows us to strategically manage our store portfolio through opening new stores, upsizing existing stores, obtaining more favorable terms on renewals or closing stores that simply do not meet our return hurdles. We continue to focus on creating a portfolio of larger stores that allows us to showcase more products and categories, improve the customer experience and drive increased store contribution. Our stores are well supported by our online channel. This was highlighted throughout our COVID-19 experience and has seen us accelerate our digital transformation to further develop our digital capabilities to build a complete omnichannel model. This will see us invest in enhancing our digital platform and team to deliver an improved customer experience, driving customer acquisition and increased customer conversion. We are actively exploring and trialing a number of new technologies across our business, including in-store devices to showcase range; customer traffic measurement and analytics, both in-store and online; call-and-collect and call-and-same-day delivery services; online chat; management systems, which provide a single view of inventory across the business; and augmented reality. Recently, we've been trialing both the call-and-collect and a call-and-same-day delivery service from a range of stores across Victoria, New South Wales and Queensland. We have seen a rapid adoption of these services, and in the case of Greater Melbourne, it allowed us to recover a good portion of our store sales. We know that technology plays a critical role in omnichannel retailing. We will continue to test and trial different technologies to ensure that any significant investment will deliver an enhanced customer experience. As we have often explained, omnichannel customers are more valuable than customers who only shop one channel. And so investing in this rapidly evolving digital channel to support our omnichannel model is critical to our business. The addition of Mocka to the group increases our exposure to the fast-growing online segment of the market with the significant benefits of vertical integration. Based on Mocka achieving the same penetration in Australia as it has in New Zealand, there is the potential for significant growth as typically, our Australian business is 5 to 6x the size of our New Zealand business simply based on population size. Mocka provides the group with greater exposure to the furniture segment and provides the opportunity to reach a different customer through design-led, value-for-money, differentiated furniture. Mocka's passion for design -- a design-centric, in-house product development allows us to control the vertical supply chain and, importantly, the pricing and promotion of our products in market, which delivers stronger gross margins and earnings. Excitingly, Mocka has been able to take advantage of the opportunity presented by COVID-19 to accelerate its brand recognition and growth rate in Australia. We will invest in product category expansion, customer acquisition and have moved to fast track infrastructure investment, including warehousing facilities to support this accelerating growth. And finally, the strategic review of our supply chain completed FY '20 saw us appoint DHL as our 3PL partner, to build and operate a new, purpose-built national distribution center for Adairs. Partnering with DHL provides us access to a global leader in the design, implementation and operation of flexible warehousing and distribution solutions to support our omnichannel approach. With the National Distribution Centre on track, we will continue to invest in our omnichannel supply chain strategy through a number of initiatives that will enhance our inventory productivity and customer experience. If I now move to our trading update for the first 17 weeks of FY '21. It remains a good news story. As we announced to the ASX this morning, Adairs online is up 134%, while store sales are up 17% on a like-for-like basis after adjusting for the Melbourne store closures. Mocka has also continued to grow strongly, being up 48% over the same period last year. Online sales now represent 41% of total sales with Adairs online at 32% and Mocka at 9%. This compares to 17% for the same period last year, noting that we did not own Mocka at that time. Our gross margin percentage has remained elevated over this period, and as we did last year, our focus remains on maximizing gross margin dollars. Inventory levels were well below ideal levels throughout this period due to the actions taken to manage the inventory and liquidity position in second half FY '20 and the stronger-than-anticipated sales results in stores reopened in May 2020. Pleasingly, these are now returning to levels more in line with last year, and we'll be in a good position to support the key Christmas trading period. Our costs continue to be well controlled. The government wage subsidies concluded at the end of September with Adairs putting in place a program to continue to support team members stood down due to government-mandated store closures. Due to the closure of 2 smaller stores during the first quarter, we anticipate opening net 2 to 4 new stores and upsizing a further 5 to 7 stores throughout FY '21. This will be supported by ongoing investment in our digital capabilities. With the ongoing uncertainty created by COVID-19, 2/3 of the year remaining, including several key sale periods, the Board are not able to provide FY '21 guidance, and investors are cautioned against projecting this growth in sales and margin across the balance of the year. To finish, I would like to offer thanks to a number of people. I'd like to start by thanking the Adairs and Mocka teams for their hard work and dedication across the year. Our team are passionate about our business, and this has never been more evident than in FY '20. During the period, stores were closed and websites unable to trade, the majority of our team were asked to stand down with a smaller group tasked with managing the online business. They did this with unwavering professionalism and understanding, ensuring that we successfully navigated the closure period and emerged well placed to manage and capitalize on the new and evolving retail environment. Shareholders should be comforted and pleased that in Adairs and Mocka, they have teams who are committed to their customers and delivering ongoing profitable growth. Finally, I would like to thank Michael Butler for his wonderful service to Adairs as our Chairman over the last 5 years. Since joining the Board as its first Independent Non-Executive Chairman in 2015, Michael has overseen the company's listing on the ASX, a successful CEO transition, the acquisition of Mocka and, most recently, the navigation of the business through the many challenges posed by the COVID-19 pandemic. I know I speak for everyone in saying we will miss his counsel and company. A search for a new chair is well advanced, and the Board is hopeful of being able to make an announcement in the near future. In the meantime, Trent Peterson has kindly agreed to act as Interim Chair for the intervening period, so we remain in good hands. That concludes my report. If you could kindly hold any questions you have for now as there will be an opportunity to ask questions a little later on. I will now hand back to Michael for the formal part of the meeting.

Thank you, Mark. The notice of meeting was made available online to all shareholders in accordance with the company's constitution, and I'll take the notice as read. In accordance with the requirements of the Corporations Act, the register of relevant shareholdings is available for inspection. Shareholders are asked to contact the share registry following the meeting if they wish to make an appointment to inspect the register. Ms. Julie Stokes of Link Market Services Limited, our share registrar, will act as the returning Officer. We will now move to the first item of business. The financial statements and reports for the year ended 28th of June 2020, as required by the Corporations Act, are being circulated to shareholders as part of the 2020 annual report, are tabled here for discussion. I now open the meeting for any discussion on matters of particular relevance to the annual financial report for the company or the company's auditor, questions for Mark Ronan in regard to his presentation or any other questions you may have for the management team. Please note that we'll specifically focus on the remuneration report later in the meeting. Jamie, do we have any questions relating to item 1?

Mr. Chairman, at this time, we have 8 questions in relation to item 1. The first 3 come from [ Mr. Peter Cooper ], who asks, first question being, "Can the Chairman please outline the progress of developing the new DC in Melbourne and whether it is on time and on budget?"

Thank you. I think in my presentation, I showed you a reasonably contemporary photo of the progress of construction of the NDC. So you can see the scale of the facility and the fact that it's well out of the ground, and it's currently having its roof installed. My understanding is there are some minor shortages of labor on the site due to the restrictions imposed by COVID-19. But then generally, we are operating -- we're running the construction program within the contingencies that are allowed, and we remain quite hopeful that we'll open in July 2021. And I think that -- so we'd broadly say that it's on time and on budget. Are there any other questions, Jamie?

Thank you, Mr. Chairman. Peter's second question is, "Can the Chairman outline any developments planned or currently in train in relation to overseas expansion?"

I think the answer there, Peter, is that we have no present intentions to expand overseas, but we remain alert to any opportunities, and we would react to them if they're presented.

Thank you, Mr. Chairman. Peter's third question is directed to the CEO, who he asks, "Could he please advise what working capital benefit will result from the new DC in terms of higher stock terms, et cetera?" And he has a second part to his question, which is actually a statement. "To the retiring Chairman, thank you for your service. As an investor, We were in good hands. We hope you enjoy good health and a great retirement." And that's the end of his statement.

Thank you, Peter. I'll get Mark to address the inventory issue.

I think in relation to the question in relation to inventory and the benefits that flow from the new DHL facility, they will be realized over a period of time. So initially, we don't expect to see significant benefits in stock turn over the short term. As we think about how that progresses, though, we expect we will be able to improve customer experience in both stores and online. And with that, that should naturally flow back to an improved stop term position for the business. But I will note that the current inventory turns are pretty good, and we don't expect to see significant working capital benefits come out of that in relation to inventory. The bigger benefit will be the customer experience that comes from the new DC, as I said, to both our stores and the online channel.

The next question comes from John Whittington from the ASA. He also has a question for the CEO. He wrote, "COVID's been a great example of a black swan event and provides an opportunity for all companies to learn about how they manage unexpected events. What would you say has personally been the biggest lesson you've learned regarding risk management during this crisis?"

So good question. I think in relation to risk management and how we consider that going forward, what it has taught us is the business must continue to think about how we remain flexible and agile when considering what the economy and the trading environment looks like. And with that in mind, what we saw through this period was a good way of working that we would look to implement again should we have to go through something similar. We saw the management team come together. We also saw the underlying culture of Adairs come to full fruition over that period of time. The team, I know, that as a management group and as a Board that we are there behind them 100% of the way and that they are a critical part of our business. And with that in mind, what we saw from them was the pure ability to step up when required. And also, in relation to being stood down, we got amazing feedback and positivity from the team, that they understood that was the right thing to be done at the time, and they knew that we would get them back as soon as we possibly could. So I think in relation to how you consider a black swan event, what we've done through this process is ensured that we've learned along the way, and we've documented things like the management meetings that we put in place, the crisis committees we put in place to make sure that, as a group, we all communicated with each other and that we were able to manage it and everyone knew what they needed to do. And I think in this regard, one of the highlights was clearly our ability to maintain that strong liquidity position throughout that period. And our culture as a business really enabled us to work closely with our suppliers, be they inventory, landlords, et cetera, to make sure that we were all in it together, and they knew that we were coming from a position of "Let's work together to come out the other side" as opposed to "We need to win and you need to lose to get through this." So we definitely documented some new ways of working, and we appreciate that, that will hold us in good stead should we need to work through something like this again.

Thank you. The next question also comes from the ASA. It's a question in relation to the orders. "When was the current audit company first appointed? When was the lead audit partner appointed? And when was the last competitive audit tender held? In addition, would you please explain why the non-audit work was so high this year and why someone other than the auditor was not chosen for this non-audit work?"

Well, in relation to the auditor, they've been the auditor now for, I would suggest, nearly 10 years. And we have already had one partner rotation in that period of time, and we are about to go through a second partner rotation over the next 12 to 18 months. And at the time, we conducted a thorough market review at this point in time before we reengaged with our auditor, EY. So we believe we've considered those 2 elements. And sorry, Jamie, can you repeat the second part of the question for me?

Yes. "Could you please explain why the non-audit work was so high this year and why someone other than the auditor was not chosen for this non-audit work?"

Yes. So the non-audit work comprised of due diligence undertaken in relation to the Mocka acquisition. And as a Board and a business, we felt that it was beneficial to make sure that our auditor act via a separate part of EY. We continue to approach that with the same diligence and the same consideration of the way we adopt accounting standards and the like within that piece of work in relation to the due diligence. So we expect that to come back down, subject to there not being any further transactions. And in future, obviously, whenever we do that work, we do consider whether it's appropriate or not for the auditor to do it or whether it should be provided to a separate firm.

Thank you. The next, Chairman -- the next question, Mr. Chairman, comes from John Whittington from the ASA. "We value Mr. MacLean's retail experience, but a concern that currently, the Board only has 4 independent directors on a Board of 8, which is not a majority. In addition, 3 of the 4 Board members with line retail expertise on the Board are current or former Adairs executives. How can shareholders be sure that as well as utilizing the valuable experience of these current and former Adairs executives, it can truly draw an independent view of management?"

I acknowledge the mathematics of the construction of the Board, but I'm not -- I've never been particularly weathered to the sort of accepted norms on the construction of the Board. I think in the case of Adairs, you need to be conscious of the history of the company, the fact that Michael Cherubino was a director of the company at the time of the IPO and pre-IPO-type period. And I'm actually very comfortable about the mix of skills and the way in which the Board works together. I think it works very cohesively. And in terms of the input of the independent directors, their view to be independent of management is very much respected by the balance of the Board. So I have no concerns about the construction of the Board at all. Jamie, do we have any other questions?

Yes. The ASA have one additional question in relation to the Board. "Mr. Chairman, I note that you are Chair of the Nomination Committee, and yet you've managed to keep the composition of the Board 75% male, which I suspect does not align with your staff profile or your customer base. Can you please explain why you've been unsuccessful in creating a more diverse Board, better aligned to community expectations?"

Yes. I think we're conscious of the tender mix on the Board. I'm actually more of a fan of diversity on a Board rather than just sluggishly following gender mix. And I think in the composition of the current Board, we actually do have a very diverse range of skills, and that would be the primary driver. Certainly, if there was an opportunity to -- within an overall constraint of seeking diversity of skills and views, to have a more reflective gender mix, we would take that opportunity. But we tend to, I think, appoint directors with a view to their skills, and I'm very pleased that some -- in the recent time, we have appointed Kiera Grant to our Board. She's doing a fine job.

Thank you, Mr. Chairman. There are no further questions on item 1.

Okay. Thank you. Item 2 is the members are to consider and, if thought fit, pass the following as an ordinary resolution, that Mr. David MacLean, being eligible, be reelected as a director of the company. The proxy results are shown on the screen. I'll now respond to any questions or comments that we've received on this item. Jamie, do we have any questions in relation to item 2?

Mr. Chairman, there are no questions on item 2.

Thank you. As there are no questions, I now move to the next item of business. The next resolution is the adoption of the remuneration report. Under the Corporations Act, an ASX listing entity is required to put to the vote a resolution that the remuneration report for the year ended the 28th of June 2020 be adopted. This remuneration report is included in the Directors' Report section of the 2020 annual report on pages 24 to 36 inclusive. It should be noted that the vote on this resolution is advisory only and does not bind the directors or the company. Key management personnel, details of this remuneration included in the report, are excluded from voting on this resolution. The proxy results are shown on the screen now. Jamie, do we have any questions in relation to item 3?

Mr. Chairman, we have one question from John Whittington from the ASA. His question he'd like to have directed to Mr. Peterson as Chair of the Remuneration Committee. "Mr. Peterson, given that you haven't used external consultants, how has the remuneration committee ensured that the information that it's used to make its decisions with regard to the CEO and Executive Director is independent and has not been influenced by management?"

Thanks, Jamie. This may test the technology, but I think we have Trent on the line, and he is prepared to answer such a question. Trent?

Can you hear me?

Yes, we can.

Terrific. So thank you, John. Thanks very much for the question. The first thing I'd note is that the Committee comprises a majority of nonexecutive directors and that the data reviewed by that Committee is not prepared by management and is reviewed in their absence. I should also note that we do garner data broadly and that I personally chair the Remuneration Committee of approximately 4 other specialty retailers, so I have pretty good access to information without the use of independent consultants. In addition to that, I would note that the objectives and measures are set independently, and we have the privilege of having the better part of a dozen other specialty retailers listed in Australia that give us good visibility on appropriate benchmarks for the remuneration levels of the key executives without the use of external consultants to guide us in that regard. So we feel pretty well informed.

Thanks, Trent. Jamie, are there any other questions?

Mr. Chairman, no further questions on item 3.

Thank you. I'll move to the next item of business. The next resolution relates to the approval of the long-term incentive grant options to Mark Ronan. The members are to consider and, if thought fit, to pass the following as an ordinary resolution. That approval be given, for all purposes, including ASX Rule 10.14, for the grant of options to Mark Ronan as his long-term incentive for the year ended the 27th of June 2021 on the terms described in the explanatory notes accompanying the notice of meeting. Mark Ronan and his associates will be excluded from voting on this resolution. The proxy results are shown on the screen now. Jamie, do we have any questions in relation to item 4?

Mr. Chairman, we have no questions on item 4.

Thank you. As there are no questions, I now move to the next item of business. The next resolution relates to the approval of the long-term incentive grant of options to Michael Cherubino. The members are to consider and, if thought fit, to pass following as an ordinary resolution. That approval will be given, for all purposes, including ASX Rule 10.14, for the grant of options to Mark Ronan -- or to Michael Cherubino as his long-term incentive for the year ended 27th of June 2021 on the terms described in the explanatory notes accompanying the notice of meeting. Michael Cherubino and his associates will be excluded from voting on this resolution. The proxy results are shown on the screen. Jamie, do we have any questions in relation to item 5?

There are no questions on item #5.

Thank you. As there are no questions, I now move to the next item of business. Item 6 is the next resolution to consider and, if thought fit, pass is the following as a special resolution, and for the purposes of Section 260B Subset 2 of the Corporations Act 2001 Commonwealth, approval is given for the financial assistance to be provided by Mocka Products Pty Ltd ACN 152476349 from time to time in connection with the acquisition as described in the explanatory notes accompanying the notice of meeting dated the 23rd of September 2020. The proxy results are shown on the screen. Jamie, do we have any questions in relation to item 6?

Mr. Chairman, there are no questions in relation to item #6.

Thank you. As there are no questions, I now move to the next item of business. The next resolution, item 7, the resolution to consider and, if thought fit pass, is the following as a special resolution, that the proportional takeover provisions contained in Rule 6 of the company's constitution be inserted for a period of 3 years with effect from the date of the Annual General Meeting. The proxy results are shown on the screen. Jamie, do we have any questions in relation to item 7?

Mr. Chairman, there are no questions on item #7.

Thank you. I now ask if there are any outstanding questions relating to any of the previous items or other business that shareholders might wish to raise.

Mr. Chairman, we have 2 further questions. The first is for Mr. MacLean, who has not spoken to his election, and has a question from John Whittington from the ASA. "Mr. MacLean, can I ask what you personally have achieved over the past 3 years as a director of this company?"

Thank you, John. I guess the last 3 years has obviously seen me transition out of the CEO role into a NED role. I think that transition has worked exceptionally well for the business. I also have investments and nonexecutive director roles in 2 other retail businesses, which are about to go public. And I think that exposure through those investments and NED roles allows me to bring different perspectives to the Board or the Board of Adairs. Obviously, I have a great affinity for the business and I'm proud to continue in a nonexecutive role. Thank you.

Jamie, do we have any further questions?

The final is a statement rather than a question, Mr. Chairman. It also comes from John Whittington from the ASA. John writes, "Thanks go to you, the Board and all of Adairs employees for their commitment to the company and helping to bring about this fine result." There are no further questions.

Thank you, Jamie. Ladies and gentlemen, that concludes our discussion on the items of business. I declare that the poll will close in 5 minutes. The results of the poll will be released to the ASX and will be available on our website this afternoon. I thank you all for your attendance today. I declare the meeting closed. Thank you.