Bapcor Limited (BAP) Earnings Call Transcript & Summary

Thank you very much, Darcy. Welcome to everybody to this afternoon's update on the first half performance for Bapcor. So Chris Wilesmith is my name. It's a great pleasure to be with you. Certainly, my first now 4 weeks in the business to get a good understanding and to share some results today that will be certainly difficult to be in my first session and after 4 weeks. But today, you'll also hear from Kim Kerr, our CFO, that's joining me. We'll run through the results. There will be some time for questions and answers. However, if you have joined via webcast, please note you won't be able to participate in the questions. So I might ask the operator to move to Slide 8 for us, and I'd just like to recognize the First Nations people of the countries that we operate in and of the wonderful journey that we'll have together in the future as we build our nations together. Moving to the next slide, Slide 9, if we could, the agenda. Firstly, we'll run through some group highlights. We'll talk to some of my early observations of the business, the performance of each segment. Kim will run through some more significant information around the financials. We'll provide an update on trading in the current half and also talk to the equity raising in the business. Thank you. Turning to Slide 9. So a little bit about Bapcor but before I jump into some of the details of the performance, 4 weeks in the role, however, 22 years in the automotive industry. I'm very excited and privileged to have been appointed into my role. And I'm really looking forward to building the business together with the tremendous team in the organization and for the partner shareholders in our organization. Over those 22 years, I was lucky to lead Supercheap Auto for some 14 years as the Managing Director. I've worked and sat on the Boards of multiple suppliers to Bapcor Group, been a customer to Bapcor Group and also consulted widely in the industry. There is no question that the Bapcor brand remains to be highly recognized in the market. But the business over recent years and the reason I opened with saying these are quite sobering results to be able to present to you is we've lost momentum. I'll talk as we go through the presentation a little bit more as to some of those reasons and more importantly, what are the opportunities outside of now. I can say that I am very excited now with 4 weeks being inside the business. The opportunities are so obvious and what I would call low-hanging fruit, there is lots of it. And so I can see a path back to where we all want the business to be. I might move to Slide 11, if we could, and I'll talk to group highlights. Certainly, the first half was disappointing and a weaker overall performance than we would have liked. Revenue at $973 million is still very -- $973 million, very significant but that is a decline of 2.3%. And when we talk to the other components of the business, it will give a very clear view where that's come from. A net PAT loss at group level, $104.8 million. Very significantly contributed to that loss was the goodwill write-down of the New Zealand business. The underlying basis of net PAT was $5.5 million. Trading conditions were certainly significantly difficult across the group. There were certainly some competitive activity that I would say that our competitors have taken advantage of some of the distraction of our business over the last few years. And so I would largely say there are economic reasons in New Zealand. There are competitive reasons in the Australian business but I'd say it's more self-inflicted, and we just need to look at that and very quickly put plans in place. So then I'd like to just talk briefly some of the things that we've done, which are about building the business for the future. There was some significant investment in IT capabilities that will enable us to have better visibility of data to help us make better and faster decisions, also a significant investment in the centralization of the supply chain as we also closed many of the warehouses from the many discrete businesses that we integrated over the last 12 months. So that building of framework is really going to help us as we start moving forward from this point. Happy to say in the Network business, there was some good positive momentum starting to occur. And certainly, the leadership in that area from a very credentialed long-term Bapcor leader has made a real difference and put us on a steady path. Retail in New Zealand -- Retail and New Zealand started to show some positive results at the end of the half, that we'll share more very shortly. The appointment of a new and energized Board in the last 5 months has seen some decisive actions being made. And part of that was the appointment of a number of significantly credentialed industry experienced executives on to the executive leadership team, but also the securing of a tremendous Chairman, Lachlan Edwards, that is very credentialed in this sort of turnaround opportunity. So terrific to have that Board support as we move forward. Given where the business stands today, the unfortunate decision that had to be made to support our capital management moving forward was the pause of the interim dividend. So on that note, I'll move to Slide 12 and just talk to a little bit of why I'm so excited to be in the business. Watching this business for 22 years, I've seen it on a journey to great, and I've watched the last 5 years as it's become a little bit confused and lost momentum. But going through the door, it is a great business. The brand means a lot. It's got a very significant piece to play in connecting trade partners, suppliers to end user customers or workshop owners. The industry wants us to be successful. And equally, when you look at our customers, many loyal customers, they've given us some very clear views of what we need to do in the future, but they need us and want to have healthy competition in the market that gives them choice. The opportunity really moving forward, they're right in front of us. We just need to be very, very selective of what we do, what we stop and what we accelerate, and I'll talk to that a little bit during this presentation. So what are some of the things that I'm seeing in the business 4 weeks in. What I've spent time doing is actually listening and talking to many people, about 800 people across our organization. And it's been very clear to me, they are team that just want the support of the senior leadership. They want clarity and they want support to really be clear about what we're doing to be successful in the future. Bapcor does remain fundamentally a tremendous foundational business but we've got to make some changes across the organization. I've seen a genuine commitment from many long-term team members that want to be a part of that. And certainly, the way forward, we need to take a team-first approach to really engage and be a part of the journey back to where we want to be. We are a complex business. We've made a lot of headroom in actually reducing complexity, 34 ERP systems, now 16 but we need to continue work on actually removing complexity from our business. It's certainly in publicly open, we've lost a lot of people. And that earlier statement about team first, we need to stop losing good people, retain and build moving into the future. We've lost some control of our pricing management and also discounts across the organization. And as we've brought many parts of the business together, the heavy lifting has been done but it's come with cost, and we've not been able to realize reduced costs. We do have the infrastructure. We have the reporting capability now. Now we need to focus on how do we use that to fractionalize costs in our business. The customer is saying very clearly to us, we're uncompetitive, and we need to address that very quickly. We needed to have a strong and energized executive leadership team. They're now in place and ready to start taking action and in many cases, already taking action. So on that point, I might then just move to Slide 17. I'm going to skip across Slides 14 and 15. They are provided in the pack, and they give you quite a bit of detail around our 6 strategic imperatives and the progress we've made. But I'll leave that for any questions you might have later in the session. So Page 17, the segment overview and how we've been performing. There's certainly been some good signs of outcomes that are occurring from the realignment that's been undertaken, but there are equally some areas that are very clear that we need to continue to focus on in the path forward. Our largest 2 business areas are Trade and Network specialty wholesale. They actually contribute some 39% and 32% of the total group revenue or 75% of the group EBITDA. We are coming into a more constrained economic environment. But what I would say is the principle of as you come into these sorts of more constrained economic environments that was given to me by a great mentor in my early career, he said, it doesn't matter how many dollars or how few there are in market, there's just how many you get. And certainly, our focus will be about growing share as we move into the future. We are lucky to be in a nondiscretionary spend segments. And so we can be confident that even in a more constrained economic environment, the business is there to be had. We just need to do the right thing by our team and customers to ensure that we are securing more than our fair share. I'll move on to Slide 18 and talk in a little bit more detail about the performance of the individual areas. The biggest trading engine is our Trade business. I'm very happy to say that although the results at minus 1.7% were certainly not pleasing, we've been able to move Craig Magill as one of our executive GMs back into the Trade business. He's been helping in networking, and I'll talk to networking in a minute, the last few years. He was instrumental in growing the Burson's business back in the day and has only more recent years moved away. He's very keen to get back into the business. He's already identifying a lot of opportunities for growth. And although only starting in December back in the Trade business, he's already got actions underway to really drive the recovery. In the trade business, we had very significant pullback in our tool and equipment business, and that's serious commercial-grade tools and equipment. We've certainly lost a number of senior people and understanding of the business we're in. We're able to secure a new general manager that is now in the business and working on the turnaround program in that business. Some good green shoots occurring, some very clear areas of focus in the coming 6 months. That new executive comes to us from Caterpillar, where it's not just the product you sell but the service that's critical in being successful. He's got his fingers on the key areas and he's starting to drive the business forward. The EBITDA was also under pressure, both from the point of view of the impact of currency because this is significantly imported products and the fact that we've not kept pace with the right pricing on those products in the market. I'll move to Slide 19 and talk to our Networks business. The Network performance for the half year was certainly impacted by the significant restructure across the group. The undertaking that activity is the right longer term, but it was very disruptive during the period. So sales decline of some 2.4%, although it's really pleasing to now see that some of the business units within networking with Craig's leadership before coming back to the trade business are starting to show good momentum. JAS, one of those businesses now 5 consecutive months of growth. CVG, truckline business certainly has been impacted by some loss of some very key accounts as the transport industry goes through some consolidation but we also had some shortfall in quality team, which we're now getting to the point of having filled those vacancies and those relationships are so critical in that business that, that also impacted us significantly. EBITDA broadly declined in line with the decline in revenue. But as I said, and you'll see later on that we're starting to see recovery signs. Slide 20, the Retail landscape. We've been lucky to secure a new leader, Dean Austin, 30 years in Retail. He's been in for about 2 months, and he's identified a 100-day recovery plan that he's put into place. The revenue for the first half, however, was a decline of 1.9%. EBITDA was equally impacted and significantly by some cost escalation and actually driven by our pricing being uncompetitive to market. It's very -- it was a terrific celebration just yesterday, the strongest growth seen in Autobarn in the last 12 months. So some of the actions is taking are starting to build momentum into the half leading up to the end of June. So we'll continue to watch and execute quickly to build momentum in our Retail businesses. Moving to Slide 21, New Zealand. The New Zealand economy continues to be challenged at a macro level. But what we have seen was quite a significant decline in that business during the year, 3.9% down year-on-year in New Zealand dollars. That unfortunately increases with the currency transfer back into the consolidated numbers at a 5.9% decline. Happy to report, however, the stable management team, a reinvigorated sales team across there in the business in November, December started seeing positive signs of recovery. EBITDA declined as well in line with the revenue decline. What I started with, it's a fairly sobering set of numbers to present but I can say that there are some green shoots that are starting to be seen. And equally, the areas of opportunities that I talked to briefly have got actions in place to really ensure that we've got a better set of numbers to start talking about the next time we're together. On that note, I'll hand over to Kim, and we're moving to Slide 22. Thank you very much.

Thanks for that, Chris. So I might just move from 22 straight into Slide 23. And so our statutory NPAT for the first half of '26 was a loss of $104.8 million, as Chris mentioned, which included $110.3 million post-tax of significant items. And this is largely due to the impairment of goodwill in our New Zealand segment. And this impairment was flagged at our 20th of October 2025 trading update. In the appendix of our results pack, we have outlined the significant items, and we've provided commentary on each one of those, so I won't go through them here today. Underlying NPAT was $5.5 million for the half, which was 87.2% lower versus the prior corresponding period. Group revenue declined by 2.3% versus the prior period, and our gross margin of $437.3 million was down 5.5% on the first half of last year. All of our segments were negatively impacted during the period with softer revenue across the board. Our cost of doing business increased by $26.7 million, which reflected higher employee costs, supply chain investment and strategic investment in our IT systems. These were compounded by the impacts of inflationary cost pressures and negative FX movements. Depreciation for the half year increased by $0.5 million, reflecting our ongoing investments and financing costs increased by $300,000. We have undertaken a change in our operating model to refocus our business on the external customer. This realignment was previously announced at our April 2025 Strategy Day and was effective from 1 July 2025. Our segment report has been updated to reflect this change as has the prior period. Our ASX released today contains the updated segment note for the first half of '25 and also for the full year '25. It is important to note that these changes have no impact on the overall consolidated financial results for Bapcor. Now turning to the cash flow on Slide 24. Operating cash flow decreased to $71.8 million, a reduction of $71.9 million compared to the first half of last year. This reflected our lower EBITDA performance. Cash conversion was 93.4%. Other notable items to call out is a reduction in capital expenditure to $15.7 million from $28.1 million in the prior period. Investment in new distribution centers and stores declined from $12.3 million in the prior period to $1.2 million this period, which reflected the completion of the warehouse consolidation program into our state-based distribution centers in the period last year. Other capital expenditure relates to plant, property and equipment in our existing stores and distribution centers, investment in motor vehicles and IT software and was largely in line with the prior period. Free cash flow was down $52 million on the prior period, which meant we had a negative free cash flow of $5.3 million. The FY '25 final dividend of $18.7 million was paid during the half. Now turning to the balance sheet on Slide 25. The key items to highlight in relation to the balance sheet are the decline in intangibles due to the $99.9 million impairment of goodwill in the New Zealand business. Also the reduction in right-of-use assets and lease liabilities due to exiting smaller warehouses in FY '25. Prior period assets and liabilities held for sale have been reclassified into existing assets and liabilities in this period as these are now to be retained by the company. The current borrowings relate to the reclassification of the MetLife facility due to mature in July 2026. We have facilities in place to refinance this facility when it falls due. Following an externally supported review across all of our balance sheet during this period, we have restated our FY '25 comparatives for accounting issues that were identified in the Trade segment. The impact of this was an $8.9 million reduction in opening retained earnings for FY '26. In addition, we've identified a payroll issue relating to the period from February 2020 to now, which required the creation of a $4.6 million pretax provision to be recorded. This issue was identified as we prepare for our HR information system to be deployed in the next few months. As most of this issue relates to the prior period, it has been largely recorded as a reduction in opening retained earnings rather than in the current period. Further details of this matter are contained in the ASX release. Now turning to Slide 26. Our net debt increased by $22.5 million during the period to $387.3 million as at 31 December 2025. Net leverage was 3.39x adjusted EBITDA, which is within the temporarily increased covenant of 3.5x as announced in December 2025. I will cover some further changes agreed with our lending syndicate to our covenants in the equity presentation shortly. And with that, I'll hand back to Chris for an update on our January trading.

Thanks, Kim. And if we could move to Slide 28, if we can. So as you can see from the slide that's just come up, the Network business is starting to show and continuing positive ground. Retail is starting to build momentum as is the New Zealand business. The clear area of continuing challenge is the Trade business. And as I mentioned, the appointment of Craig as the EGM of that business unit, a credential Bapcor executive, he's built it. He's identified the problems, and we're working very hard to actually change that but it still needs significant focus. What is very clear that the Network business, the underlying JAS continues to go in a positive direction. The Wholesale business is starting to show very consistent growth as well. We've got really the next 6 months is a stabilization as the -- some of the initiatives that we're deploying at the moment mature, we'll certainly see that build momentum as we move into the new financial year but that should give you a little bit of a sense of directionally where we're heading. On that note, we're going to now move to Page 7, Kim, and handing back to Kim.

Thanks, Chris. So we're now moving over to the equity presentation that was also released today, and I'm going to start on Slide 7. So today, we are announcing that we are undertaking an equity raising of $200 million, which is structured as a 1 for 1.36 pro rata accelerated nonrenounceable entitlement offer of $150 million as well as a pro rata placement to raise a further $50 million. The entitlement offer consists of an offer to eligible institutional shareholders and an offer to eligible retail shareholders. Further details of this structure can be found in our presentation issued this morning. These shares will be issued at an offer price of $0.60 per new share, which represents a 65% discount to Bapcor's last closing price of $1.72 on Wednesday, 18th of February 2026 and is a 48.4% discount to the theoretical ex-rights pricing of the raising. Approximately 333 million new shares will be issued under the offer, which represents approximately 98% of Bapcor's existing shares on issue. The proceeds from the raising will be strictly used to enhance Bapcor's balance sheet flexibility by repaying debt. This reduction in net debt will provide the business with sufficient headroom to focus on getting the engine running to improve operating performance and execution. As a result of this raising, Bapcor's pro forma net leverage ratio would be 1.7x at 31 December 2025, which was down from the 3.39x before the raising. We've also received approval from our lender syndicate to temporarily lower our fixed cover charge ratio covenant for the next coming testing points. We have been engaging with our lending certificate during this period, and we continue to receive support for our business and the operational turnaround being pursued. These temporary changes provides Bapcor with further flexibility to execute the turnover strategy -- turnaround strategy. With that, I'm going to hand back to Chris, who will continue.

Thanks very much, Kim. So what we're looking in terms of full year guidance, we expect to be delivering an underlying EBITDA of around $150 million to $160 million post AASB 16 or $74 million to $79 million on a pre-AASB 16 basis. Pro forma net leverage ratio of around about 1.7, and it's expected to reduce to between 1.2 and 1.5 by the end of June, with the net debt expected to benefit from the release of around $60 million to $75 million of cash flow through activities around the focus on reducing inventory and also receivables in the business. Going forward, we'll be targeting a net leverage ratio of no greater than 2 as part of our capital management initiatives. So I think, Kim, I'm handing back to you for a moment or is that page -- now next Page 11.

Yes, you've got Page 11 as well, Chris.

Thank you. Page 11 is now up on the screen. So you heard Kim mention get the engines running. This is what's exciting me about this business. There is so much opportunity for the last few years, the focus on the re-scaffolding, the improvement of data and how we use it, the consolidation of ERPs and DCs that it's really distracted us from what now is the opportunity ahead. We've got great opportunities to improve revenue and profit through stock availability. It's a very key call out of our customers at the moment. We've got lots of stock in the network. It's just not in the right location. We've become uncompetitive in the market. We've done the analysis. We know where that's occurred, and we're now starting to take action to get back to competitive pricing over the coming months. Craig moving into Trade has also identified that we lost some of the management controls around our discounting and the application of putting in management controls again is already starting to show an ability to improve margins. Some of that margin as we start pulling back on discounts will also be put into accelerating getting our whole offer back to being competitive with market. So key areas to drive revenue and profit. Cost of doing business. We've done a lot of the hard lifting over the few years. The DC is ready to run. We just need to use it in a way that we can optimize and fractionalize the costs in the business. Our systems are ready to give us insights to take to action. And only 2 weeks ago, the report was able to be built to actually start helping us to improve in-stock across the network. Without that investment in the last few years, although it hasn't fractionalized or delivered growth at this point it has put us in a great place to deliver growth quickly in the future. If I look at the next slide, moving to 12, if I could, capital efficiency. There is no doubt that we've identified some $100 million worth of excess stock in the business, moving, holding, financing stock costs a lot of money. It costs a lot of money to move it through the business and network. So we've introduced programs to actually reduce significantly over the coming half year excess stock by putting it into the right location and stop us from ordering more stock back into the network. We've looked at the range and the quality of the products, and we'll be looking at making certain the width is right and in the right locations. At the moment, we've got a very, very wide product range offering, and there is certainly opportunity to actually refine that. So it's more customer-centered but reduces overall capital in the business. We also talked about the release of actual overdue debtors back into our cash. And right at the moment, we're working very hard on receivables, again, a capability that was built over the last 12 months that now gives us absolutely visibility of what accounts are overdue and why, and we're actively pulling those back into the business. We reduced our overdue receivables by over 10% in the last few weeks. Returning growth to core. It is a great engine. We just need to focus on the team, reduce the turnover actions are already in place to actually address some of the significant issues leading to that. We've got a significant build with an executive team that is energized and ready to actually focus and drive the initiatives that can make a real difference. Team, customer and looking at every element of how we drive profit is what we're focusing on as we move forward. So I'd now actually ask if you could move to Slide 19. Why is it coming into this business is so exciting to me. I go back 20 years, the first moment I walked into the door of Supercheap Auto. It reminds me in so many ways, the similarities. Bapcor is a great business. It's got strong brands. It's got trade partners and customers that need us. We just need to refocus like a laser on delivering what our team and what our customers want. Our customers said in stock, the right price. We're working on it. We've got a supply chain that can enable us to put the right stock in the right location and fractionalize our costs going forward. We closed many DCs as we centralized. It's now centralized, efficient. Now it's for us to really fine-tune the levers to take cost out. I truly believe that our position today is a significant opportunity. We have scale. We've got a tremendous team. We just need to focus and with your support, move forward to the next phase of taking us not just back to where we were, but beyond. I'm excited by the strength of the network that we have right across all of the countries we operate in. Bapcor's service and customer proposition is there. We just need to focus back again on the things that make a difference, difference for our customers. Our team are knowledgeable. We've got a renewed energy in the business just by doing simple things, celebrating the great things we're doing, recognizing as we build culture across our business. I'd like to turn to Slide 20 now. So what are the things that we're going to focus on to get our engine running? Improving discounting controls, improved branch level ranging, category mix management to optimize and ensure we've got both the products that customers want but also the high-margin categories in our business are given absolutely the opportunity to grow and be more significant, the mix of the total revenue. Optimizing the cost, the removal of non-added activities, we've been looking. We're taking action as it speaks. Group-wide reviews of all major costs to see what else we can do to remove cost out of the business, reviewing of COGS escalation in key categories and to work with our partners to make certain that we've got the right price on the purchase of goods into the business. Capital efficiency, you've heard me talk to a number of those initiatives. And the real drive to get the engines really going fast moving forward is stabilizing the team, rectifying the price position and having the right stock in the right locations. So on that, I'd like to then move to question time, I believe.

[Operator Instructions] Your first question today comes from Sam Teeger from Citi.

Look, I've covered Bapcor for over 6 years, and I haven't seen many companies kick so many own goals like this. I guess given this is now the third management team trying to turn around the company, what's going to be different this time?

Good question. Thank you. Look, I think the first thing is actually involving the team, not just the executive. The exec clearly are here to stimulate to help refine and be clear about what we're focusing on. The last few years, there's been so many significant initiatives that have caused the team to lose the ability to focus on customer. It's actually meant that the team have been discombobulated and become disengaged. So the first thing is we've got the right team in place. We're now starting to rebuild the team confidence and actually to rebuild the culture. We've done an engagement survey. We know what to do. We're starting to move some of those things into action. Coming into the business after being a supplier to over the business over the last 6 years, it was loud and clear in market, fix the price and getting in stock. Those initiatives have been stood up in the last few weeks, and we're rapidly moving to a target of improving our in-stock at site by 8%. Historically, in the business that I've run, I've seen the conversion of improved in-stock at about a 50% ratio. So if you improve in-stock by 8% across the network, you can only imagine there's a significant improvement of revenue and profit. Getting competitive in market. We've given market share to our competitors as we became uncompetitive. We understand now how we got uncompetitive. We've developed a plan to get back in very short order, the next 5 to 7 months to having a competitive position in Retail and Trade. We've got 18 initiatives to make certain that, that doesn't negatively impact the profit result but it actually helps us to enhance the profit result over those periods, slowly in the coming half, building momentum quarter 4 and then certainly putting us in a good position for '27. And when you grow your stockpile by 67% over 5 years, that's a significant cost burden that's come into the business. It's consumed a lot of cash, and we've got a very clear view of how we can optimize and remove excess without negatively impacting the customer. The only other thing that I would add in terms of all of those elements are going to drive growth. It's actually making certain we're not trying to focus on 268 initiatives, and that's how many I found when I joined the business but on the few that are going to make a real difference, and I've talked to some of those that we'll be focusing like a laser on the coming months. Final point, what has occurred previously, I can't control but I can contribute and help the team to be successful in the future. I've got a 14-year history of driving team engagement, profit and revenue growth in the automotive sector but I'm known for disciplined execution and helping team to be clear but then execute with speed. And that's what will be different in these coming quarters and years beyond.

All right. Great. And I wish you all the best with it. I just have 2 questions on the equity raise. And I wouldn't normally ask questions like this but given the combination of just what's happened at Bapcor over the last couple of years, combined with the fact that the raise is at a 65% discount to last close and the existing shares on issue are almost being doubled. I think anything you can share might be helpful to investors around just giving them a bit more incremental confidence in the outlook. So the questions are, one, are all the top 5 major shareholders participating in the equity raise? And two, will management be participating in the placement?

So I can answer some of those questions, and I might defer to Kim to build on it. Yes, that there will be participation at a current Board level. We've had very strong commitments from our existing shareholders. And it's fair to say that we're actually in a very good position at this point as we move to officially launching the capital raises we did today. Kim, would you like to add any additional flavor to that?

Yes. So strong support from existing shareholders and also strong interest coming in from new investors as well. So yes, thanks for the question on that.

Your next question comes from Craig Woolford from MST Marquee.

Plenty of questions. I'll try and keep it brief but hopefully, we can follow up down track as well. So the message here is about improving profitability. There is an emphasis on improving profit margins. But then on the same -- but you talk about the competitiveness or the lack of competitiveness that Bapcor's had. Should we expect gross margins to be structurally lower? You talked about the gross margins in the first half were down 150 basis points. It was cited as Trade. It looks like you're resetting your gross margins lower to be competitive and to stem losses of share. Is that a fair interpretation?

Craig, look, I think history would probably be the best determinant. You can actually do both. And if I look at the previous organization I led very low margins. We went through the higher margins. We maintained our value proposition, and we're very competitive in market. It's a lot to do with a number of elements. Profits only made, as you know, when you sell a good. So if you've got a high-margin item that's uncompetitively priced, you actually don't sell much of it. And we've seen significant degradation of the sales of high-margin products because they were more affected by our price increases over the last 3-year period. So you put them back to being competitive, you increase the mix actively promoting it, driving it, getting -- sorry, your customers back on board because you've got a competitive price, that can have a positive impact. We actually built a tool called an elasticity modeling capability and system post the McKinsey review but we haven't used it. Two weeks ago, we've got a now expert in this area working with our team to make certain that the optimal price points are being applied to items that are not so impacted by being uncompetitive. Some prices will go down, some will go up but using elasticity modeling gives you a balance between optimal profit units and customer satisfaction. So that capability will be introduced into the business. The other significant thing, and it's the same point that I made, one of the early findings of Craig in moving back into trade is some of those high-margin categories we're actually significantly out of stock in the store network, lots of stock in the DC. And so we started moving that back out into the network. That's just 3 of 18 initiatives that we've got running that are actually both about growing your total margin profitability while also reinvesting back into price. So hopefully, that gives you a sense of what we're doing.

Yes, it does. It's something to keep on I guess I get the point of focusing on gross profit dollar. Something I've raised with the company over a few years is just a lack of disclosure around D&A by division. It will be, I think, quite important given where profitability now sits to get that information. And what I'm really referring to is the rental component, which has to be surely allocated at segment or business level, there's rents paid on your retail stores, there's rents on your Burson's trade outlets, for example. Just to get a better understanding of true profitability, particularly, I'm sure Bapcor, like any business, you have a bell curve of stores, some are profitable, some are loss-making. I do wonder whether there's a need to shut more stores, particularly on the retail side of the business.

So Kim, do you want to answer part of that, and I'll answer to the retail closures.

Yes. Thanks for that. We are looking into that, and we'll come back to you on that one in the future.

And Craig, to stores, yes, you are right. You've always got to do pruning of networks, and there's a fair bit of work already underway looking at underperforming. We did close some underperforming sites in the last 6 months. Undoubtedly, there will be more as we do network reviews as we go forward, not significant because before we really get into the pruning mode, we've got to do what we do well, i.e., make certain that the business is optimizing the actual network that we've got. Autobarn is already showing positive momentum. We've got to get the revenue moving back through there, take the actions to be competitive and look at using the data we now have, labor management planning to ensure that we're running them at optimal levels. So there's plenty of things that we can do before we'd consider more significant closures in the business. I'm also aware there's only about 10 minutes left for questions. So back to you, operator.

The next question comes from John Campbell from Jefferies.

Chris, just your comments, I think, around complexity at Bapcor would resonate with everyone. And you sort of indicated that you've had some success in reducing complexity across IT and collapsing ERP systems down to 16. I guess the question would be, when you look at that complexity of the totality, what needs to happen? I mean you've sort of talked a bit about this but what are the big things that need to happen to shrink it to a manageable, not necessarily the business footprint but just to shrink that complexity down to what you might consider a manageable level? And would that involve divestment of certain business units that just don't fit in with really the totality of what Bapcor is all about. I'm specifically thinking about truck parts as being seemingly somewhat outside the core. But yes, that's the general tenor of the question.

Look, I think the first thing that we need to do is get the engines running and just maximize revenue and profit firstly, before we start getting to a view of divesting. And I think it's too early in my tenure after 4 weeks to really give you a definitive on that. What I can say is the Board and certainly, I and the leadership team firstly need to look at more strategically what is the right ecosystem and actually how do the pieces fit together. So that will be more medium term, and I mean months, not weeks. So it's not that we're going to take a long time to get to that point. The fractionalization of the cost that you referred to, I'll just give you one example because what it says is the business has done a lot of hard heavy lifting, absorbed a lot of cost. This rationalization of the DC saw many DCs closed but it saw a lot of stock moving into one central location. So if I looked at the current supply chain cost and looked at best practice across the industry, you'd say that we're running probably 2% to revenue higher than we need to be. Now as we move stock away from the branches, we've introduced more high-cost freight movement from that central location, long miles to stores and branches. We can change the settings on that to actually move more stock less frequently on road freight standard rather than Express. So you can take cost out of doing that. You can take operational cost out of the DC by doing that. So you can actually become more efficient. Now if we hadn't done that consolidation work, you wouldn't have got that benefit. There's other areas. I said we've got a bit discombobulated and lost focus on our team member. Our team members' turnover has been very high. We spent $17 million on recruiting new people. Do the right thing by your team, create the right culture and don't spend $17 million on recruiting people. So there are lots of elements in the reducing of the cost of doing business. We've identified significant ones. We're starting to take action. That will start occurring in the coming weeks and months. But if you sat at the highest level and looked at our cost of doing business relative to what I'd call best practice locally, Supercheap or GPC or globally, O'Reilly's, Halfords, I'd say there's a delta of about 10% to revenue. So there's 2% in the supply chain. We need to keep delaminating that and removing those or fractionizing costs where we can. Hopefully, that gives you a sense of we're on a path. It's early days but there's no question it's there, and we've got infrastructure capability to deliver it.

Yes, that's very helpful. Could I just sort of follow on, on that? Just looking at, say, procurement, I mean, you've been talking about how you're going to move or manage inventory more efficiently. In actual procurement, if we went back 3 years or 4 years, it was identified that procurement was happening at a very sort of granular business unit level. And by consolidating or centralizing procurement, the opportunity to get significantly better terms from bigger volume orders was very real. And in fact, it was one of the big sort of buckets that was held out in the better than before transformation strategy. How do you see procurement being managed at the moment? And do you see significant opportunities from here?

Look, I think the last 4 or 5 years, there's been both good cost and bad cost removed out of the business. One of the areas that I think is significantly underinvested in has been our category and product and also planning teams in terms of resourcing effectively, the modernization of the tools to really optimize inventory. We ordered 130,000 items last year, less than 10,000 represent 50 -- sorry, to get the number right, 95% of our total volume. There's some 20,000 active lines that have got very suboptimal performance, and they're distributed right through the network. Those sort of lines, you need to hold less of them centrally. They're generally lines that people will wait a bit longer to get to it as much as the really critical lines, we need to put more of it out in the network. So look, I think we've made steps forward. The centralization gives us now the capability to move pretty fast but there's equally a long way to go. What's the size of the prize? In the half year, we're targeting about $30 million just by doing some sanitizing and removing excess from the wrong location, putting it into the right, put it at a mature state, a customer-centered range, I think there's somewhere in the order of well over the $100 million mark that could come out of the stockpile while still improving the outcome for the customer. Hope that answers your question.

Yes, that sure does. Look, one last quick one, if I may. Looking at what you're sort of guiding to in terms of like-for-like growth in the second half and just with how you're talking about pickup in sales, do you feel that you're at a point now where maybe you're starting to not see share to GPC and to Supercheap? Or do you feel that arguably, you're still losing share?

Look, I think you could look at the results that were released from SRG this -- just in the last 24 hours and say that at a Retail level, we've lost share. I think the same would be of GPC. We're just starting to turn away from being in negative numbers, Trade still some heavy lifting. We know what the plan is. We're now executing it. But it is -- it doesn't just happen overnight. So there's a slow build. We've got momentum in most business units, but we're going to need to continue to really look after that and nurture it and actually put the foot on the gas where we see the opportunities to drive it harder. And that's why we've been moderate in our, call it, half year forecasting and what we have signaled to market. But as it matures going into first half of F '27 a build and then in that sort of 12 to 24 months, I think it's going to take that order of time to really get up to the momentum that we know we can and have delivered before and actually start really pulling back share from those other players.

Thank you. Unfortunately, that concludes our time for questions today. I'll now hand back to Mr. Wilesmith for any closing remarks.

Look, I think just a final thank you to the shareholders. Thank you for your openness of question. But most importantly, for continuing to support us as a business. You can't change the past and the thing that I've been talking about with the exec team is so what, now what. We have made some mistakes. We've clearly identified some very clear areas of priority that can make a real difference, and we are focusing on that. We're moving fast to actually make a difference to actually improve the performance in the future. So thank you for continuing to be shareholders, and I really look forward to continuing the journey and talking about more success and delivery of the numbers in the future. Thank you again for your time today.