Bapcor Limited (BAP) Earnings Call Transcript & Summary

Good day, everyone, and welcome to the Bapcor Full Year Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Stefan Camphausen, CFO Bapcor. Please go ahead, sir.

Thank you, Daisy, and a warm welcome from our side as well. As Daisy said, my name is Stefan Camphausen. I'm the CFO of Bapcor. With me are members of Bapcor's executive team. And together, we will present Bapcor's FY '23 full year results in the next 60 minutes or so. This will be followed by a Q&A session. And I would like to remind everybody that you will only be able to participate in the Q&A if you're joined via the conference call dial in, not via the webcast. Further is already advised, today's call is being recorded. It is now my pleasure to hand over to Noel Meehan, Bapcor's CEO and Managing Director.

Thanks, Stefan, and good morning, everyone, on the call. Let me add my welcome to all those people that have joined this morning, much appreciated for your attendance as we go through the financial results for FY '23 for Bapcor. Let me start with an acknowledgment to the country. Bapcor would like to acknowledge the Traditional Custodians of country throughout Australia. We pay our respects to Elders past, present and emerging. We all recognize the continued connection of all First Nations people with country across Australia, in particular, all those on where Bapcor operates and where we meet today. As Stefan said, we're joined today by a number of the operating EGMs. And so we'll go through the presentation today where we'll talk about both how we performed and also very importantly, how we transform in as an organization. Bapcor, as you know, Australia -- Asia Pacific's leading provider of vehicle parts, accessories, Equipment and Services & Solutions, spread across a number of verticals, trade, wholesale, retail mills, obviously, operations in New Zealand and also in Asia, which is incorporated through our Bapcor trade business. Over 5,500 team members. So my thanks to all the team members that do what they do each and every day to deliver the results that we're going to take you through today. Over a 1,000 locations. And for the first time in Bapcor's history, we've just generated over $2 billion of revenue. As you see Bapcor has been around for a number of years, originally starting from the Burson business through lots and lots of acquisitions. And as you can sort of see, we're in this phase of the organization now where we're taking a good business and working towards making an even better business -- a business that's better than before. And you can see, we continue to look at acquisitions as we move forward. Some fundamentals in terms of what drives our business. We're in the aftermarket and mainly targeting cars at 4 years and above in age. And you can sort of see on the charts on the slide, the average age of vehicles is increasing, so is the number of vehicles on the road. So we believe that's pretty resilient industry to operate in and has been for many years that provides us with opportunities to continue to grow the business with good underlying demand. Turning now to FY '23 highlights. If I break the commentary into the PERFORM side of things and the TRANSFORM side of things. On the Perform side of things, let me call out a few things. Revenue. We saw revenue growth across all segments. From Bapcor perspective, up nearly 10% to a record $2 billion. Pro forma NPAT in the second half, it was in line with what we said in guidance, slightly ahead of the first half, so $63.3 million compared to $62 million in the first half. Also really pleasing to see, as you see on the slide. In the second half of '23, we saw margin improvement come through in our trade and wholesale businesses. We do have some headwinds in our retail businesses. But overall, if you look at the results, the FY '23 further demonstrates the resilience of the Bapcor model in a diversified business, and we're very pleased on that. In terms then of network expansion, we continue to be capital disciplined and look at ways to improve our return on invested capital and grow the business over years through a variety of either acquisitions, buying new stores or conversion of franchises. We added 31 new locations. The consolidation of warehousing is continuing in Bapcor. For all intents and purposes, the DCV, the Melbourne consolidation is essentially finished, and we're now focused on optimization. And the Queensland warehouse, the build has been practically completed and that we will start integrating businesses towards the end of this calendar year into the Queensland operation. I said a number of months ago, inventory is enormously important for this business. Saying yes to customers more often is something that we need to continue to do. We did say for a variety of reasons over the last few years that inventory had been elevated through pandemic supply chain issues, all those type of things. And we set a goal at the start of the financial year last year that by the end of the financial year, we would have reduced inventory on a like-for-like basis by tens of millions of dollars. I'm absolutely delighted to show that we've been able to deliver on that commitment. Really also very pleasingly in the second half of the year, you'll see in the cash flow that Stefan will take you through a little later on is a significant improvement in cash conversion in the second half, up 145%, bringing the full year cash conversion to 107% and with obviously a reduction in net debt. So we've got a very strong balance sheet. On the transformation sort of agenda that we've been working through the last 12 months. A number of things I'll call out here. Continued Board renewal has happened with the addition of both Brad Soller and Kate Spargo to the Bapcor Board. And from my team's perspective on the group leadership team, I'm delighted to have 2 new EGMs on the team who joined us during the year. Tracey Wright, who is the EGM for Specialist Networks; and Kristoff Keele, who's the EGM for Strategy and Transformation. I mentioned a number of months ago that Bapcor was doing lots of things as an organization. And one of the things that we wanted to continue to develop as an organization is to be a purpose-led organization to build on the strong foundations of the values in the organization. Lots and lots of work has been gone into that, involving both employees, team members but also customers, stakeholders and investors in what the Bapcor purpose should be. With great pride to announce that purpose today, and you see it on the slide, Bapcor's purpose is to "Be there for what matters most". And so I think it's an enormously important sort of juncture with the company going forward, which will then help us focus on what matters most, be there for our customers, our communities, all stakeholders, our team members and so a really, really great step going forward. Lots and lots of work has been done, and we'll take you through that shortly on Better than Before on the transformation program. My quick uptake on that is everything is going to plan, It's in line with what we've said. We've got no change to the targets that we've articulated for 2025, and we'll take you through that in a little bit more detail later in the presentation. Recapping then on some of the financial highlights for 2023. Solid results, which was in line with guidance; improved cash generation; ongoing resilience. The business model demonstrated by what we've been able to deliver. And a very, very strong balance sheet with gearing at 1.1x, which puts us in a really good space for looking at optimization and growth going forward. If you look at then back at sort of the resilience of the business over a number of years, you can see here a 5-year history showing a number of KPIs around P&L. And as you sort of see, the business has grown. The really pleasing thing you see on the chart here is the stability of gross margins in the business over a number of years. Yes, we continue to say, well, how do we continue to grow the business, and we'll do that in the most capital-efficient way. But again, I think we've got a backdrop of a resilient business. Health and Wellbeing, enormously important for every organization. A number of things in terms of the health and wellbeing I'd like to call out. One of the big things we are doing in the organization, we'll continue to do so is to try to make things easier, make things easier for our customers, our team members, our suppliers and everybody else that deals with us. We're making some great progress there. We've got more work to do on that. But that is part and parcel of what we're doing with our Better than Before push. In terms of one of the other big initiatives that -- from the -- being Better than Before, is to simplify our processes. We've been a very accretive business over a number of years. And part of doing Better than Before is to simplify our process and making things easier so we can focus on customers. Keeping team members safe is obviously something that every organization should do. And as you can see on the chart on the right-hand side, we've got still more work to do. We've made an enormous improvement in the injury frequency rates reduction that you can sort of see there. In terms of one other thing I'd call out in terms of one initiative that we've put in place. Very conscious. We've got a lot of frontline team members and 5,500 people that work really hard for Bapcor each and every day to service our customers. We've done a couple of things from a People and Culture perspective in the year. We've updated our parental leave policy. We introduced a domestic violence leave policy and also introduced what you can see on the slide there, Bapday. So what does that mean? Everyone that has a birthday, and we all have birthdays, we give people a day off for their birthday that they can take close to their birthday, again, just as a bit of a thank you and reward for our team members. If I then talk through the segments, and then I'll hand over to the segment leads to talk through their individual segments. But you can sort of see on this chart, on the pie chart on the left-hand side, the composition of revenue across the business with a heavy bias towards trade and wholesale. We do have a retail element, 20%. And then if you look at the chart on the right-hand side, really pleasing to sort of see the stability of margins. Yes, they go up and down. But again, if you look at the Trade and Wholesale, particularly in the second half of the year, despite all headwinds and economic pressures, our margins at gross margins have -- an EBITDA margin so it has continued to improve in the Trade and Wholesale sector. Looking at the footprint that Bapcor has established over many, many years. We've got a very good footprint, both in Australia and New Zealand and emerging into Thailand. We have lots of opportunities to grow the footprint across the geographic areas that we're involved in. We'll do that in a capital-efficient measured way. And then on the right-hand side, again, just a reconfirmation. You've seen this slide before. But when we look at our revenue spend and what customers buy from us, there is a bias towards nondiscretionary spend, which bodes well, I think, for the future of the business and it just backs up the resilience of the aftermarket industry that we operate in. I'll come back and talk to you slightly -- a little bit later on, but now let me hand over to the EGM of Trade to take you through the trade segments, Steve Drummy.

Thank you, Noel, and good morning all. My name is Steve Drummy, and I'm the EGM of Bapcor Trade. We've had another strong year in trade. And pleasingly, revenues are up just over 11% versus FY '22 with 8.8% growth in same-store revenues as well. EBITDA grew 7.9% versus FY '22 to $124 million, which is also another good outcome. In terms of EBITDA margin, the full year margin is slightly down year-on-year, but we have seen a real improvement in the second half of the year on the back of successfully implementing targeted category and pricing initiatives. All in all, the financial outcomes reflect the resilient nature, as Noel mentioned, of our industry as well as our leading market position. In terms of the businesses within Bapcor Trade, we've added 2 new stores to the Burson network and will continue to grow in the future. Both Blacktown Auto spares and the [ paying ] spare parts continued to perform strongly since acquisition, which is pleasing. In Precision Automotive equipment, we had a record year with sales up more than 25%, driven by our focus on our key accounts and our dealerships. And finally, we have made continued operational progress with the team in our Thailand business. Over the course of this year, trade has continued to focus on improving our vehicle safety and ensuring our people are responsible road users. This has assisted in decrease in the number of people seriously injured and also reflected in a significant reduction in our injury frequency rate. Also, I want to thank our customers and our supplier partners for the ongoing support they continually show us. We will continue to be invested in their success. Overall, it's been a really robust FY '23 for the team, and I'm very proud of the performance that the Trade team have achieved. And I want to make sure I thank every team member for their leadership and their hard work in FY '23. I'll now hand over to Tracey, IN Specialist Wholesale.

Great. Thanks, Steve. My name is Tracey Wright, and I joined Bapcor as an EGM in April this year. I'm now going to present on the Specialist Wholesale part of the business. On the one hand, specialist wholesale is a market leader in the truck and auto electrical sectors through what we call the network part of the business. On the other hand, we have the wholesale part of the business, which acts as an aggregator and importer for One Bapcor. My colleague, Craig Magill, will dive deeper into this part of the business later in the presentation. Overall, the Specialist Wholesale segment achieved revenue of $766 million in FY '23 representing growth of 9.5% on FY '22. This growth was driven by realizing opportunities in our market-leading Truckline business and was particularly supported by growth in regional areas representing Truckline's relative competitive advantage through its strong regional presence as well as the positive impact of regional economic conditions in mining in WA and Queensland and agriculture in New South Wales. In terms of EBIT, wholesale achieved $103 million for the year, which represented a margin of 13.4%. Similar to what you heard from the Trade segments from Steve, our EBITDA margins improved in the second half of the year through leveraging growth and improved on brand performance and integrating the light and heavy truck offerings to our businesses. Own Brand sales as a percentage of total sales grew to 60.5% of the revenue, with growth particularly in the established brands of JAS and Baxters, reflecting overall growth in the order electrical market category. With regards to our integrated light and heavy truck offering, we piloted leveraging our Japanese trucks parts business WANO across our heavy truck network under the Truckline brand to deliver a more integrated customer offerings [ synergic ] successes of this approachable supported the second half EBIT growth that we saw. We had a total of 11 new stores in wholesale through 3 acquisitions and 8 greenfield developments throughout the year. And one of the acquisitions we're particularly excited about is the addition of E-Max into our truck operations towards the end of the year. This acquisition provides opportunities into previously untapped product category for the business, including quality and heavy-duty electrical wiring harness systems, electrical connectors and accessories and airway products. Like Steve, I'd just like to thank the team for an amazing effort throughout the year and really proud of what we've achieved. I'll now hand over to Tim to talk about retail.

Thank you, Tracey, and good morning all. My name is Tim Cockayne and I've been with Bapcor for more than 4.5 years, developing a modern retail offer through growth, modernization and digitalization. In FY '23, we had a solid year in retail with revenue up 8.3% and EBITDA up by 1.7% against the previous period. Like-for-like sales were up 5.6%. And pleasingly, we have continued to grow our own brand sales through the network to [ 34.3% ] Some key highlights for the year included opening the 100th company-owned Autobarn store, double-digit like-for-like growth in the Midas business, which is one of the parts of the business that is franchise operated; the launch and growth of the Accelerate Loyalty Club; and the successful product range development and disciplined range reviews through our merchandise team. As you're also all aware, during FY '23, there have been increasing headwinds in all retail markets due to cost and macro pressures. We are and will continue to work to mitigate these impacts by targeting increased basket sizes and average spend across the customer base, which is being supported by our new Accelerate loyalty program. I'd now like to hand over to Martin in New Zealand.

Thank you, Tim, and good morning, everybody. Firstly, I'd like to thank the whole New Zealand team for your dedication and efforts across what was a challenging FY '23, particularly given the difficult macroeconomic conditions in the first half of the year. Having said that, customer and pricing initiatives led to same-store sales recovering well in H2 with good momentum even going into the new financial year. This was especially pleasing given the significant nationwide disruption from ongoing good revenues, including Cyclone Gabriel as the company at core has continued to support our team members, customers and the communities we operated through these most difficult of times.. In line with our improving top line H2 margin performance is also pleasing and provides a sound platform from which to navigate in recessionary conditions. The ongoing consolidation of operations, onto superstores, coupled with the expansion of existing locations, means we can deliver a superior service and product offer to customers as this remains a key focus here in New Zealand. Finally, the acceleration of our One Bapcor approach has seen even greater levels of business unit cooperation within both the New Zealand's business and the Australia business wholesale cohort. This will be built on further across FY '24. Thank you again, and I'd like to hand back to our CEO, Noel Meehan.

Thanks, Martin. And thank you to all the other EGMs who've given an update on the businesses. Let me just give you a quick update on supply chain. Supply chain, let me say many, many times, it's an important part of our value chain. We're making great progress. And as we continue to make great progress there, I believe it will become a competitive advantage for the organization moving forward. A few callouts on the slide. If I look at the network and one of the key KPIs we look at each and every day is the fulfillment rates on emergency orders. And for the -- over the whole year, it's averaged in excess of 98%. There's many days during the year that we've actually hit 100% over many, many times. So yes, that we had a number of sort of teething issues 18 months or so ago. Glad to say that we're through all of those. And again, if I just looked at the Emergency order fulfillment right yesterday across the business, it was running at 99.6%. So a real improvement there. So well done to the team there. We're in the process now in terms of, again, further supply chain optimization, how we can centralize inventory management and also build capability around dynamic sales and operational planning, again, to build that muscle on supply chain, which again is important to the whole value offering. In terms of DCV, as I said earlier in my opening, we've essentially finished the consolidation. We have 3 warehouses successfully transitioned during the year. And now the focus for the team at DCV is obviously to continue the customer service offering, improve operational excellence and look at optimization opportunities going forward. Moving to Queensland. You can see just on the right-hand side there, a couple of pictures. You'll see from top to the bottom on DCQ, pleased to say we've got a 1.8-megawatt solar panel installation. We've also got, as you can see in the middle there, some cantilever racking. And then the bottom, if you've got a very keen eye, you can see that we've also got a number of electric vehicle charging units, which is very important obviously from an ESG perspective. Really importantly, all of the lessons from Melbourne have been translated into Queensland. We've learned from some of the saving issues. We're well, well prepared for Queensland. The cantilever racking is something new in Queensland, but again will give us an operational efficiency. And pleased to sort of say, as we start integrating those businesses, and the first one that will be integrated from a big segment perspective will be our trade business, which will start commissioning later this calendar year, probably in November, December-ish. No movement away from the guidance that we've provided that once all 7 warehouses are integrated into Queensland, we're expecting an EBITDA benefits between $4 million and $6 million. So really pleased. Let me now hand back to Stefan to take you through some of the detail on the financials.

Thank you, Noel, and starting those financials with the income statement on Slide 21. We already spoke about the strong top line performance with revenues exceeding $2 billion for the first time in any financial year in Bapcor's history. Moving down to P&L. I would like to highlight Bapcor's robust gross margin at 46.7%, which was stable year-on-year, reflecting the resilience of our trading performance. In terms of cost of doing business, this remains a focus area for us given the temporary margin compression and input cost pressure that we are experiencing. And while pleasingly, the cost of doing business margin slightly improved during FY '23 from 32% in the first half to 31.9% in the second half, we will continue to work on this. From an overall bottom line perspective, our full year pro forma NPAT of $125.3 million was in line with guidance. And once again, we have provided detail on Bapcor's pro forma adjustments comprising of DC consolidation and Better than Before costs, which are in line with what we have communicated previously. Turning to the cash flow on Slide 22. With our focus on accelerating inventory turns during the year, we have significantly improved cash conversion from 67.8% in the first half to 145.4% in the second half of the year, taking the full year cash conversion to 107.4%, as already highlighted by Noel earlier. This pleasing outcome represents an operating cash flow of $320.7 million for FY '23, which is a significant step-up of 73% compared to last year. We've also continued to invest into the growth of the business, both organically and through M&A in a targeted and disciplined manner as well as increasing returns to shareholders. Overall, we had a positive net cash movement in FY '23, which takes me to our sound financial position and balance sheet, as shown on Slide 23. On the back of the significantly improved cash generation, which, as discussed, was driven by reducing our inventory by the tens of millions in line with target and guidance, both our net debt position and leverage ratios improved year-on-year. Hence, this continues to provide us with financial flexibility to implement Better than Before, pursue acquisition opportunities and invest in growth. Moving to Slide 24. We wanted to illustrate the very strong improvements we've made in our capital and inventory efficiency during FY '23. As you can see, inventory increased in the first half of FY '23. But as the measures we actioned early in FY '23 took effect in the second half of the year, we have achieved a full year like-for-like reduction of almost $50 million, and our inventory efficiency improved. Finally, I would like to conclude the financial section with the overview of our dividends. For FY '23, a final dividend of $0.115 per share, fully franked, has been declared, taking the full year dividend to a new record level of $0.22 per share. This represents a payout ratio of 59.6% at the upper end of Bapcor's dividend policy and is a reflection of both our strong balance sheet as well as our confidence in our markets and performance. I will now hand back to Noel.

Thanks, Stefan. If I can now sort of flip towards the transform side of things of the presentation. You've seen the Slide 27 before in terms of Better than Before. And as I said back in November last year at the Investor Day, it's a natural evolution of the business strategy with an unchanged focus on our customers. It'll be focused around, obviously, the cultural side of the business, complemented, obviously, with the purpose of the business, a push on efficiency, a clear strategy with the customer in the center of what we do. We want to leverage the scale of Bapcor without losing the customer-facing intimacy that we have with our customer-facing businesses. Slide 28, again, just a repetition of the slide we've used before. We've got a track record you see there of our strong performance. At the heart of Bapcor, Bapcor is a business that secures distribution and sales parts. And by all of our businesses working together, we believe we can create significant value moving forward across a number of areas in procurement, pricing, property, fleets and also supply chain. Most importantly, as we continue to transform as a business, we do have to make things easier for our people, unleash the power of our people, deliver more for our customers, work with our suppliers in a more strategic basis and ultimately deliver more value for shareholders. On Slide 29, again, very similar to what we've presented previously. No change to the targeted goals of FY '25 where from a discrete perspective, the Better than Before program, we're targeting $100 million Net EBIT from that discrete program split across those 3 areas in commercial, COGS and cost, and also looking then on a simple average basis over a 3-year basis to take the return on capital in excess of 12%. If I then go to Slide 30, in terms of the progress that we've been making since the implementations of the Better than Before program. If you go back to where we were sort of completing a number of initiatives at the half year, you can see on the right-hand side, the way to read this slide is more of the initiatives moving to the right is a good thing because that means they're more complete. Obviously, the easier ones get done first and the more complex ones tend to get them later, but we've made really good progress there in terms of moving initiatives from left to right. And we'll constantly continue to evolve what's in the initiative pipeline, as you can sort of see on the left-hand side. But my key takeaway to everyone on the call today is the Better than Before program is on track. All work streams are progressing as planned, and we are very, very confident in the work that we're doing to take this business to a new level of performance. To try and give you a bit more color on this, I'll just ask Craig Magill to talk through some specific case studies that we've been doing in the business. Over to you, Craig, if I can.

Thank you, Noel. Good morning. I'm Craig Magill. I've been with the Burson and Bapcor business for the last 10 years with previous responsibility for the Trade division that Steve spoke about earlier. My current role is EGM for the Wholesale division, which is the import aggregation elements that Tracey referenced. In addition to other things, I have the responsibility for the development and implementation of the new group procurement commercial services department, which includes procurement and group category management functions. Let me explain our general approach first before I talk about [indiscernible] work stream. This is a significant project in scale, impact and complexity. It's a multistage build covering all direct or product and indirect spend across the group, which is circa $1.4 billion. It all started in February. While some vendor term alignment and benefits have been achieved in prior years in Bapcor, the B2B opportunity is to truly leverage 100% of Bapcor spend. As a part of our capability build, we have appointed a new Chief Procurement Officer, Scott Walker. Scott started with Bapcor in June and comes to us from Coles with extensive procurement experience, including working at General Motors, so he actually understands the automotive environment. The overall objective is to create deeper, more strategic relationships with key vendors, aligning brands and products where it makes sense across the group business unit leads to fewer suppliers at more favorable unit cost and terms and conditions. We believe, in many cases, this becomes a win-win with our supply partners. I'll now provide some highlights in regard to the case study we show on Slide 31, which is -- which is actually a well-progressed pilot in one of our categories. We initially built a project team to kick off -- kickstart the procurement work streams. This has now evolved to current state with the implementation of group category management team within the procurement commercial services structure to coordinate and drive implementation of the initiatives group-wide and obviously maximize value capture. We are upgrading systems, mapping and implementing new processes, engaging cross-functionally to execute, and I'm very pleased with how well the business is embracing and executing the project. It's a group-wide team effort of the highest regard. So now specifically referenced the procurement process part of the pilot. Incumbent, local and international challenger brands were engaged through a mixture of RFP into direct negotiation. So far as outcomes, in this pilot category, 3 key supply partners are increasing their breadth and depth of business with a whole of Bapcor helping deliver improved outcomes in line with the targets we set. This also creates more value for themselves. And of course, as a consequence, there are some previous incumbent suppliers who are exiting the business. This outcome will allow us to have an improved customer offer at lower cost, better terms and conditions, including net working capital benefits, also enables a reduction in supply chain complexity, removal of duplication and a lowering of SKU count. Another aligned and significant work stream centers around consolidating private label or home brand proliferation, making smarter and more strategic ranging decisions, maximizing the penetration of selected Hero brands across the group. Private label penetration has been a focus of Bapcor from its inception. There has been significant investment in acquiring quality businesses with brands allowing Bapcor to vertically integrate the volumes. This, as you will all be aware, is quite profitable, and our progress over the years has been very strong. Our work on private label is enabling strategic ranging programs being not only embedded in the procurement work stream, but also enabling the example being referenced on the right-hand side of the slide, which is to provide a broader offer to market, smarter use of working capital, a more comprehensive offer to align customer bases. It's simply a better, smarter offer to market than our previous approaches. I've been a part of the Bapcor leadership team since the day we floated on the ASX. I'm incredibly proud of what we have built at Bapcor. With the scale we now have, the Better than Before program is giving us the structure and the impetus to see the opportunities in hand plus unlock layers previously out of our reach. I'd like to publicly commend and thank the teams across Bapcor for taking the challenge for the hard work they are doing and say this is a very, very exciting time for Bapcor, I'm excited to be here. I'll now hand back to Noel.

Thanks, Craig. Before I sort of just sort of go through a summary and outlook, you will see in the back of the presentation all other case studies, so there's lots happening in your organization. But thank you, Craig for giving us that level of detail. Moving now to the summary and outlook. You can see on Slide 34, the balanced scorecard, which is consistent with what we disclosed earlier in the year. So I won't go through all of the numbers there. But that's something that we'll continue to update every 6 months to the market. So again, to hold ourselves accountable as to where we're going with the organization. I mentioned Purpose-led early on in the presentation. You see on Slide 34 the articulation of the purpose. This has been launched after months of work with over 1,200 team members, suppliers customers and also a number of investors. And the articulation of the purpose you see on the right-hand side, Be there for what matters most. There's lots of evidence across many, many different geographies and purpose lever organizations delivering lots of value for both team members but also obviously, stakeholders and customers. It's focused on 3 efforts -- 3 circles on the right-hand side. Number one, Making things easier; number two, making things Better than before; and number three, Deliver on our commitments. This will be launched and brought to life across Bapcor over many, many months. And I think unites the organization sort of One Bapcor purpose and builds on the significant platform that we've got with strong values. But it helps people understand what we really mean by what matters most in terms of focus and efficiency and culture and those type of things. So absolutely delighted on where we've got to there. Moving now to the outlook for FY '24. You'll see on Slide 35 a numbers over comments. Let me try and summarize some of the comments before sort of closing out the presentation. As we look into FY '24, we're expecting solid demand in Trade segment to continue, but probably more likely at normalized longer-term growth rates rather than what we've seen in the last couple of years. Specialist Wholesale segment will continue to benefit from growth and consolidation opportunities, particularly in the Truck market. Our Retail segment, unsurprisingly, has some challenging sort of economic conditions and more uncertain trading environment. But things like the loyalty program that we've brought through and the increase in brand is our own brand sales levers that we're pulling to try and mitigate some of these market impacts. Underlying demand in New Zealand, we expect to improve versus the prior year. As an organization, we're not immune to some macro headwinds in terms of temporary margin compression from cost inflation and other external factors such as payroll, tax increases, investments in capability and the higher depreciation and those type of things. What are we trying to do with the business in terms of our focus and our targets? As Stefan said, we've got a very strong balance sheet. We intend to keep a strong balance sheet to give us flexibility to respond to opportunities to further grow the business. I mentioned the importance of supply chain. So we'll continue to bolster our supply chain capability. There is enormous focus on the organization to remain focused on return -- improving the return on invested capital. We will continue to expand the network across the business. And we're very, very focused on the articulation and delivery of the -- delivery of the Better than Before benefits in line with previous communications. You can see there at the bottom of the chart, we've said previously that gross benefits in FY '24 of $20 million to $30 million are expected to flow through, most likely heavily weighted to the second half, partially offset then some of the one-off transformation and OpEx costs as we sort of go through there. The last slide before handing back to Stefan and then we'll go into Q&A. How would I describe the year? Enormously proud and thanks to all the Bapcor team members and all of our supplier partners and customers that deal with us each and every day. To deliver such a resilient performance where all of our key targets were achieved and in line with guidance, I think, is absolutely fantastic. Really good to see the strength of the Trade and Wholesale markets and the stabilization of New Zealand. And yes, we have got some macro headwinds, particularly in the retail sector. The Bapcor purpose, "Be there for what matters most", I think, is really important for the future of the organization. Better than Before goes through that saying that we've got the $100 million Net EBIT target for 30 June 2025, and the return on invested capital target of 12% average return on capital employed. So lots of focus there. We're on track to do that, and we'll continue to update and give more detail as we progress through that. What does it mean in terms of the outlook for the organization? You can see there, Bapcor expects a solid underlying performance in FY '24, subject to, obviously, market conditions, and then we do expect the Better than Before benefits to come through, as I articulated on that 20% to 30% growth, less some operational costs and one-off costs. But I'll just hand back to Stefan, and then we'll go into Q&A.

Thank you, Noel. And this is formally the end of the presentation so we'll head straight into Q&A. And I would like to hand back to Daisy,our operator, to share the instructions for the Q&A session.

[Operator Instructions] We'll take your first question from Mitch Sonogan from Macquarie.

Can you hear me?

Yes, all good, please go ahead, Mitch.

Yes. Just a quick one. On the segment EBITDA margins, they all improved half-on-half. In the second half, x retail was only down 10 basis points. So just looking out into FY '24, is the second half margin a decent base for us to expect looking into that year? And I guess the second part of that question is just can you maybe touch on what cost inflation you're seeing across the business and implemented or planned price rises and initiatives to offset that in '24?

Thank you for your question. If I go to the first part of your question in terms of the second half margins, look, I think it's probably a decent base to go forward with the caveat, obviously, around the retail side of things, which we'll have to see what happens there with the market. But I think as a working hypothesis, I think what you sort of articulated is correct and obviously, in terms of longer term, Better than Before benefits will come through and that will further enhance margin longer term. In terms of specific cost inflation that we're seeing, again, if I refer back to some of the outlook comments on things like payroll, tax and those types of things. I'm not being political here, but if I look at what's happened with some of our state imposed the increases on payroll tax, in terms of order of magnitude between payroll tax and workers' comp, that's probably $3 million-ish extra sort of cost into the business. Wage inflation is probably running, on average, across the business at probably 4%. There's hotspots in different parts of the market, which you'd expect, but probably that side of things. So -- and then if you then sort of say in terms of our pricing philosophy, you look back at sort of the 5-year history of Bapcor. In terms of cost of goods sold increases and those type of things as an importer like everybody else, they tend to get passed through on a regular basis. And so I think that will continue. We just need to continue to be very vigilant on things. Energy prices are going up, obviously, insurance goes up and all those type of things. And everything that we're working on in terms of optimization is trying to mitigate those impacts as best as we possibly can. And as Stefan sort of articulated, Mitch, albeit a very minor decrease in cost of goods sold in the second half, it was a decrease. It didn't get out of -- so whack and so again, I think the team are doing a pretty good job there to sort of mitigate that cost inflation.

Yes. Excellent. Very clear. Just a second and final question. Just in terms of the inventory reduction, not a grand outcome, down 26.2% of revenue. Is there any further to go in '24? And obviously, relating that back to Better than Before, I guess just thinking about where that trends to through '25, '26 or what the target is through the Better than Before program?

Thanks, Mitch. Let me answer this way. Obviously, delighted with the improvement. Inventory is key to this business. You were going to say yes more often to your workshops. You'd like to sort of say us being able to do what we said we're going to do. Look, I think I would -- I won't give a specific target, but I'll say this, 26.2% is a pretty good number. We'll continue to try and optimize that. We will get some further improvement through consolidation of warehouses and those types of things. And as we through Better than Before continue to look to improve the return on invested capital which currently stands at 10.4%, we get to the average of 12% in 30 June 2025. You can work the arithmetic out says that we have to make a significant improvement on return on invested capital. And so it's across the board in terms of capital efficiency, including inventory as well as profit performance will, together, get us towards an excess of 12% target with targeted on return on invested capital.

We'll hear next from Tim Piper from UBS.

Tim here. Just first one following on from the last question on inventory. Clearly, that's come down quicker or more than expected. Does that play into your confidence around the timing of starting to realize the Better than Before benefits in '24, just given how much the program has evolved around procurement?

Thanks, Tom (sic) [ Tim ]. Look, if I took deal with the inventory side of things. If you look at -- because we import and have long lead terms with lots of suppliers, and as we were going into FY '23, and we said at the start of FY '23 we were targeting tens of millions of dollars of reduction, but we didn't think that would happen until the second half of the year because it takes a long time for it to happen. And so I was confident we were going to get there and -- but it was going to take some time because these are complex supply chains that you're managing. If I then go to the link into Better than Before, particularly on the -- if I talk just on the gross benefits that we're targeting for next year, $20 million to $30 million, we've got lots of plans in place. It will be weighted more towards the second half of the year. And again, what we're trying to articulate, Tom, is coming back to the purpose slide is when we make a commitment, and we've made the commitments, I want to be known as a management team that deliver on those commitments. And so I won't say they're going to be delivered earlier, but I'm going to say that I'm confident we've got plans in place to deliver in line with what we've articulated to the market. And if I go one step further, just to preempt another question from somebody else. People might say, well, if you get $20 million to $30 million gross next year, how are you going to get to $100 million the following year? And again, it's exit run rate that's going to be really important next year.

Got it. Maybe just second part, one on your outlook commentary around Trade going forward and normalizing back to sort of historic leverage. And I assume you're sort of talking about like-for-like growth sort of average 4.5-odd percent to sort of 5%-ish pre-COVID outside of FY '19. Is that right? And then I guess the question is there's been, obviously, a lot of talk around the increased age in the vehicle car park, inflation being higher. Is that not an argument that we could be in for a period of actually higher than historical average Trade growth?

First of all, Tim, let me apologize for calling your Tom. I just realized that I couldn't read my handwriting. So apologies for that. Yes, look, on the Trade, what we're basically trying to sort of say is, if you look at what's happening in the marketplace, and we've had extraordinary sort of like-for-like sales growth over the last couple of years, look, I don't think it will sort of switch back to historic growth rates overnight. So there is an argument to sort of say, look, it will go towards that 4% or 5%. We're just being a little bit sort of cautious to sort say, don't be expecting 8% to 9% going forward. You might then get more than 4% or 5%, but it won't flip overnight today. So hopefully, that sort of helps where we're sort of trying to guide you to.

Got it. I want to squeeze one more in just on the Retail segment. I mean second half looks like your like-for-likes are up about 1%. Any commentary you can kind of give on the progression of growth through the half, like where you sort of exited May, June, July in terms of the year-on-year like-for-like in revenue? And then second part of the question, I mean, it sounds like the earnings are kind of skewed in the second half of '24 on Better than Before. Does Retail, sort of play a part in the second half earnings skew in '24 as well, do you think?

So let me have a go at this. If you look at the business, again, from a Bapcor perspective, and I'll come back to retail. The retail tends to be more first half biased than second half biased because of sort of Christmas and Black Friday and a bunch of things. The other businesses tend to be pretty even across the year. If I sort of answer the question on sort of the July performance, if I look at July across Bapcor, I've made the comment that it was a solid performance. All segments in July at higher revenue this July than they did 12 months ago. Like-for-like sales in retail will be coming up. But again, the -- as Tim sort of mentioned, on things like the Accelerate program and it's in the detail, but we've only launched the loyalty program since December. Credit to Tim and his team, we've got 600 sign-ups to that program. So again, what we're trying to do is mitigate if like-for-like sales come down, how can we mitigate it with other things. Hopefully, that gives you some color.

[Operator Instructions] We'll move next to John Campbell from Jefferies.

Just a couple of questions. A lot of my better questions have already been asked, unfortunately. Just on the Better than Before, a key part is obviously procurement, improved procurement. And I guess one of the cautions to date has been that people thought that suppliers were going to push back hard against your ambitions for better procurement. Can you just give us an update as to how supplier discussions, negotiations, et cetera, are going?

Yes, John, happy to do so. And I'll probably build on what Craig explained. We've got, obviously, a choice of suppliers and partners looking with whom we work going forward. And they do want to work with us going forward. There is a lot of value that we are generating by working together. And what that means is that we are, in many cases, achieving a true win-win situation with actually more volume and more profit, maybe at a slightly lower margin, but more volume, more profit for our future supplier partners. And there is for us a lot of -- when we think about procurement, it's not just about transferring $1 of profit from a supplier to us. It's actually by working together, generating more for our supplier partners and for us. I think what is fair to say is that -- and again, refer back to the private category explanation that Craig made for those supplier partners with whom we will go forward and that we wanted to work with us that had absolutely worked out. But I think what is also fair to say is that some suppliers do not want to work with us and do not want to work in a value-added environment. And if that is the case, then we're obviously parting ways as you should. But pleasingly from our perspective in those categories for which we have worked so far and that are nearing the finish line, and we are delivering benefits in line with our target. And it is a situation which is beneficial for us, plus it is beneficial for our supplier partners. It's not just about a value transfer from one to the other.

Great. Just 2 other questions. Obviously, the Melbourne DC, when you commissioned it and ramped up, you're obviously in a tough time in terms of COVID and labor availability, et cetera, et cetera. Could you just give us an update on the risks, I suppose, about around the Queensland DC, how you see it and the steps you've taken to mitigate any of those issues that you had with the Melbourne DC.

Again, I'll be happy to do that. I think there are 2 things that I would highlight. Number one, we've had a lot of lessons learned out of DCV that we have incorporated into DCQ. And that means that we are starting in a much better position from the get-go. But just touch base on the labor -- the specific labor element of it. As you said, COVID and the disruptions have impacted what we were able to do in DCV. One of the benefits we're having in DCQ is that we -- a lot of our pre-existing warehouses are actually in a reasonably close proximity to our new central distribution center. And what that means is that we can attract a lot of our existing team members from the existing warehouse into a warehouses -- into the new one. And therefore, a lot of the transitional risk that we've had in DCV where we moved far away from our existing warehouses isn't there to the same degree in DCQ. I'm saying that, I'm 100% sure not everything will go perfectly according to plan. But I think on the get-go with the lessons learned out of DCV and with the proximity of the new warehouse compared to the preexisting ones, we're in a much better position to commence operations.

When do you expect to be commencing commissioning of DCQ?

We have started to transition 2 of the bulk operations that we've got in the greater Brisbane area, so the heavy equipment, and it goes to that on that [indiscernible] around the cantilever racking, which we've installed, which is particularly for optimizing space when you move big and bulky equipment. So they are in there. They have transitioned successfully. Having said that, in terms of one term that is very, very small. And at this point in time, the first litmus test will be when we transition the trade business into DCQ, and that will be towards the end of this calendar year early in FY '24.

Great. Look, last question for me. Obviously, COVID was a difficult time, I think, for M&A, and we all understand that, and also implementing a massive transformation program like you are is probably also makes M&A more challenging. But historically, Bapcor has done pretty well, particularly from bolt-on M&As over the years. So can you just give us a sort of a sense on where you see -- I mean I think you mentioned it in your [indiscernible] potential acquisitions or the like. Can you just give us an update where you're at with that in terms of getting back to that constant and regular sort of bolt-ons, I suppose.

Yes. Thanks, John. As you say, Bapcor has been very successful at doing lots of M&A over a number of years. If you look at the half year, we've done some, and we'll continue to do more. I think the way to think about it is, particularly in the Truck line space, and you saw Tracey spoke about one of the acquisitions we've done recently, a company called E-Max. So I think the Truck line space is an area obviously importance and attention. The Trade business will continue to grow do and that by either our own store rollouts or buy-ins or businesses. So those areas that we are looking at. And fair to say, look, we have been approached. Our name tends to get mentioned with every M&A opportunity in the industry. We have had a look at a few things this year in the last 12 months. And in some cases, have participated in sort of looking at things. And -- but we remain very diligent in terms of the multiples we're prepared to pay, and we'll walk away from things. But I think the way to think about it is you will continue to see lots of opportunities come through and probably an over-index on proportional terms on Truck rather than sort of passenger just given the state of the markets.

And congratulations on what you've achieved today.

Elijah Mayr from BofA.

Just a couple of quick ones. I guess, around the EBIT expectations at a net level FY '24 from Better than Before. And I guess on the second part is where we should look to across the segments of where those benefits will come through.

Thanks, Elijah. So if I think about FY '24 and Better than Before, we said there would be gross benefits between $20 million and $30 million, and that's what we are targeting. We still have some remaining costs that we are going to spend. And all of that, we've tried to summarized on Slide 29. So the net contribution of the Better than Before, depending on whether we land at the high end or the low end of the range, will then probably be half of that I would expect, there or thereabouts. Despite some of it, and I think reason evenly split between COGS and cost and probably not so much and livery commercial, but to Noel's point, you've got initiatives that are a bit less complex, and they are also smaller in quantity, but they are the ones that tend to be done first. And they would more be in the cost base, I would suggest rather than in some of COGS-related ones. And again, I would refer back to what Craig explained with regards to the complexity of the process that we are working through in procurement, for example, to ensure that we are maximizing the benefit. So that does take time. It does lead to a bigger quantum, but it does take a bit longer.

Largely in the second half '24, should we expect to see that sitting in Trade, Wholesale, New Zealand retail or sort of split across the segments?

There will be -- it will come across -- it would come through across the board. So in all of the segments, there will be some benefits out of Better than Before in FY '24.

Second one, I guess, second half '23 was the implementation phase for Better than Before program. What was the, I guess, the biggest challenge and biggest surprise for you guys as a team in that implementation phase?

Thanks, Elijah. So look, it's a really good question. We've been planning this for a while. Obviously, we announced it to the market last November. Look, I think if I look back on it, and we've got still a lot of work to do on it, the diligence it's that the team went through on what we call building the bankable plan with real rigor has just been outstandingly impressive. All of the initiatives that we sort of articulate on the slides, and we've got sort of 300 of them, have a detailed business plan and a detailed execution plan. And so they're not just sort of -- they start from an idea and then go through a stage gate process. But the way the organization has embraced that challenge has just been phenomenal. Really pleasingly, the initiative owners are people that put in the hands of the cost Bapcor to say I want to leave that initiative. And so the identification of talent in the organization, to me, that's been an absolute sort of highlights. Is it without its challenges? No, it's not. There's lots of challenges and lots of rigor. We -- through Kristoff and his team, we've got a small transformation office, but the cadence of work is pretty hard. And I'm very conscious of that. But we've got a good team. We've got people aligned behind Better than Before as a way of doing business. And so that's probably been the highlight to me, the embracing of the concept.

We'll move to the next caller in the queue, Sam Teeger from Citi.

When you use the word solid, is it reasonable for us to assume this implies double-digit growth? Or is that a bit of an optimistic interpretation of the word solid? I'm just confirming $15 million of net benefits that Stefan referred to before from Better than Before, is that part of the solid?

Frankly, I think the best way to think about it, Sam, let's break it into 2. You have the underlying business and then you have the Better than Before that Stefan spoke about. In terms of the underlying business, and I'd say solid, if I look as a proxy for what we've seen in July, and I mentioned this earlier, all businesses have grown revenue. What does that mean on an aggregate basis? Mid-single digits from a Bapcor perspective. Now that's not all translating into bottom line because of obviously some of the cost inflation and those type of things. But that would be sort of the guidance that we're trying to sort of give to label.

Right. So just to clarify, solid will be, from an earnings perspective, less than mid-single digits? And on top of that, you'd have the Better than Before net benefit?

Yes, that's how I think about it.

All right. Great. And just one for Stefan. In terms of the comments on higher D&A and interest with any sense of the magnitude, or if you can sort of like roughly what you're thinking?

I didn't get the second part of the question. I think the line broke up a little bit. Can you just repeat that, Sam?

Yes, just in terms of the higher D&A and the high interest outlook for FY '24. Just if you can kind of give us a bit of a steer or a sense of the magnitude?

Yes. I think, sadly speaking, over the past couple of years, we have invested, and we invest in one period and the D&A goes up in the following periods. And that is something also with the -- we're finalizing DCQ and continued investment into the businesses that I would expect to continue in a target is to transaction.

All right. And then look, just on the Retail part of the business, when you guys are converting franchise stores to company-owned stores, are you seeing better sales performance? Or did the franchisees drive the business harder given they have more personal upside? And how do the franchise same-store sales compared to company-owned same-store sales in FY '23? And I guess any comments you can provide just around the metrics you're getting at the moment when you are converting stores from franchise to company-owned around cost, margin uplift and et cetera?

Yes. Look, if I look at -- let me answer the second part of the question first, Sam, in terms of like-for-like for FY '23. Franchisee like-for-like and company store like-for-like is basically the same. So no major difference between the two of them. If you look then at the franchisees that we've got, I think we've got on Autobarn 36 and 102 company stores. The majority, obviously, of those 36, both befall to really good franchisee stores. And what tends to happen, sometimes, not always, is there can be a generational change. So a franchisee might approach us and say, look, they're interested in sort of selling to us. And so you're inheriting a pretty good business, buying large, anyway. So again, you don't see a material shift on that one that tends to be good franchisees that you're buying. You do see the dilution on sort of margins because of the accounting impact.

Okay. And sorry, can I just ask one more on trade? I guess, what are you seeing in the market now that makes you think growth will moderate? Or are you just being a bit conservative? Just trying to kind of marry your outlook on trade to what we heard from [ GED ] yesterday, they seemed a little bit more upbeat on their aftermarket outlook? And just any color on the promotional intensity in the broader trade sector would be helpful.

Thanks, Sam. Let me try and give some color again, the way we look at it upon it. And there's no doubt we've had a really good year in trade, as Steve have sort of articulated. You look at that sort of revenue growth number that we sort of had coming through there, 11-ish percent. More volume than price come through that. When we go and talk to -- and everyone talks to different people. But when you go and to talk to workshops, anecdotally, 12 months ago, you might talk to a workshop on then I say, well, I've got, I don't know, 3 weeks of work and now it's 2. So I guess we're just sort of taking that into consideration in some of the commentary that we put out there.

Going just on the promotional intensity?

No, there's always different promos that go on and all those type of things, but no major shift. We're just -- I think we're just getting better at it.

We'll move next to Craig Woolford from MST Marquee.

I just wanted to kick off with a question, just double checking on the $20 million to $30 million Better than Before savings. That will be the actual impact on the P&L in FY '24? It's not a run rate figure?

Yes, that is the gross number of drop-through. You then have to deduct the associated costs, which I've explained earlier. You would then expect kind of half of that potentially is a net drop through. But a little drop through is not a run rate.

That's clear. And in the called out wages, what's taking on wages and big payroll and a few other items. What about rents? Do you have any exposure to CPI-linked rental deals?

Yes, absolutely. And there is another area of cost inflation. We've got 1,000 locations roughly, and we've got a lot of different terms and conditions. And quite some of them are CPI-linked, some are rented, some don't, and many would have been signed years ago where inflation was not necessarily on anybody's radar screen, given the lower zero inflation environment that we've enjoyed for a decade or so. And so there's definitely quite some exposure there. Part of which, again, we are addressing through Better than Before and by building a central property function to actually take us to a better place with regards to that. But there's an element that is actually washing through as we speak. And that has contributed to the increase of cost of doing business, FY '22 into FY '23. Having said that, and not to reiterate the point, during FY '23, the overall cost of doing business has been stable.

One quick one. So just on the interest expense [indiscernible] ability in place. They mean that the credit spread narrows. But looking at your totality of financial accounts, it looks like there's a fair bit of variable rate exposure. So do you expect the average interest rate on your debt to be higher in FY '24 than FY '23?

Yes, I'll answer. If you think about the average level of debt FY '23 to FY '22, that has, of course, increased. And then towards the end, overall, the closing balance has decreased, but the average level has gone up and so has the average interest rate. So that's something that will own both aspects, the average level of debt for the cash conversion and by taking out some fixed rate swaps in terms of the interest rates, both aspects is what we are addressing.

Right. And then probably more steer towards Bapcor Retail. Can you clarify if it's 1%-ish same-store sales growth June half year. Can you give us a sense on transaction numbers versus average transaction value for that division?

Let me try and answer, Craig. I don't have the specific detail on the top here. But I guess the way we look upon it, and again, if I use -- let me use July as an indicator. So revenue for retail in July compared to 12 months ago is slightly higher. Part of that like-for-like stand a little bit, but then you then look at whether it's basket size and those type of things. And the Accelerate program, which is our loyalty program, we're doing lots of data analysis there. What we are seeing there, and I won't give the exact number, but the average spend on a loyalty member is higher than the average spend on a non-loyalty member. So now we've got 600,000 loyalty members who are spending more lot than non-loyalty members.

So my understanding is a lot of the products are still seeing quite a bit of inflation it might be digital product inflation that maybe average spend I don't know probably because of the basket contribution.

No, no. Look, I think the way I'd look at it, Craig, sorry to jump in. But the way I'd look at it is -- and what we've done for the last 2 years, we price graph against probably 1,200 products each and every day. The mesh around the money with the market. If you look broadly what's happening in Retail, in our business, you might take the higher priced items, which used to be things like -- we used to sell lots of roof racks and obviously, electronic equipment and those type of things. Their decline on the other side of things, oils, spare parts and those type of things is increasing. So you're sort of seeing that happening.

It's quite a different thing. Understood.

We'll move next to James Casey from Ord Minnett.

Just to get a sense of your progress on your Better than Before program. In your procurement initiative, have you actually introduced or executed your category management plans in any single category to date?

Thanks, John. Look, as Craig sort of articulated in sort of the case study that he went through earlier on today, we are well, well advanced on a couple of categories. The nuance in it is -- let me try and explain it this way, James. Let's say that we've negotiated new contractual terms. We're then going to go through a process. Obviously, when -- if we're moving product out or new product in and those type of things, that takes time. And so we can say, yes, we've signed contracts with new terms, but you then got to exit your old stock and bring in your new stock. So that will take some time. And hence, why we're saying that the gross benefits that we're expecting next year is more weighted towards the second half of the fiscal year rather than the first half.

Okay. With relation to the truck parts business, I noticed you've introduced your Japanese truck parts into the Truckline business. You commented before about the underperformance of the WANO brand. Is that pilot program you're running there? Is that precursor to potentially combining those 2 operations and consolidation of sites?

Look, it's a good question, James. Look, the introduction of Japanese truck parts across the business is making a lot of strategic sense. Over time, we'll continue to sort of say, well, how many locations do we need and other consolidation opportunities and those type of things. But we haven't got a definite plan to say, okay, by x, we're going to consolidate plants or sites and those type of things, we'll just optimize our network going forward.

Okay. Just one last one. Just with regards to your gearing position, it's all your focus on capital efficiency, you're potentially moving into a stronger financial position going forward. In the absence of acquisitions, would you consider a buyback to improve your capital structure and make sure it's as efficient as possible?

That's an interesting question. I mean, capital allocation is something that we look at from a strategic perspective. And in the end, it's a question of alternatives. We see a lot of opportunities with a very good return profile from a business point of view, both organically and inorganically. And for as long as those opportunities carry higher returns than what the share buyback would potentially do, that should, of course, be the preferred investment option. So we look at it from a very rational point of view and to try to maximize shareholder value.

Your final question today will come from James Bales from Morgan Stanley.

In the outlook commentary, you called out increasing payroll taxes and investment in capability. Can you maybe firstly give some indication on the magnitude of each of those buckets of spend?

James, yes, let me go on the payroll tax one. If you look at payroll tax and workers' comp, order of magnitude is about $3 million.

And on the investment in capability, is that separate to Better than Before? Or how should we think about that?

Look, I think it's more linked into Better than Before than separate from Better than Before. So I think the way to think about it is -- I'll give you a simple example. We've got 1,100 properties in the portfolio. Previously, we didn't have any, sort of, call it, centralized property capability. We're now just building those type of things, same on pricing. It is more linked into Better than Before than outside of Better than Before.

Okay. So when we look at the central overhead line, how should we think about the change versus the second half run rate in '23?

On a segment node point of view, in terms of head office, we see that kind of half year on half year does increase a couple of million bucks in the low single digits, $1 million or $2 million or $3 million. And that, in essence, is a mix of BAU and Better than Before. We talked previously, for example, about the investment we've undertaken into our safety resources where we started with let's say, one dedicated person. We now have dedicated people in every single segment. And the outcome of that -- or one outcome is what we've discussed earlier with regards to the reduction in the injury frequency rate plus, in line with our values, it's absolutely the right thing to do in terms of duty of care for our team members and for ourselves. And some of that is flowing through. So is the investment into some B2B-related capability in terms of, for example, the transformation office and property, procurement and so on. So all of that is coming through there. I think the 2 reference points that I would highlight is, even at the Macquarie conference, we had a little bit of an overview of top 10 or top 15 roles that we've added. And then you will see that, again, there is a mix of Better than Before and business as usual. And just in terms of Better than Before and in the Better than Before scorecard that we provided to you on Slide 29, and you can also see some of the quantums in terms of steady-state OpEx, which directly relates to procurement categories in pricing, property and technology.

At this time, I will turn the conference back over to your host for any additional or closing comments.

Thank you, Daisy. Just in closing, we would like to thank all the participants of today's call for your continued interest and support of Bapcor, and we are looking forward to engaging with you over the next days and hopefully in person. And for everybody watching the soccer tonight, of course, go Matildas. Thank you, and bye-bye.

That does conclude today's teleconference. We thank you all for your participation. You may now disconnect.