Beacon Lighting Group Limited (BLX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Beacon Lighting Group results presentation for the 26 weeks ended 26th December 2021. [Operator Instructions] For opening remarks, I would like to turn the conference over to the Beacon Lighting Group Chairman, Mr. Ian Robinson. Thank you, Ian. Please go ahead.

Thank you for your introduction. Good morning, shareholders. My name is Ian Robinson. And as the Executive Chairman of the company, I would like to welcome you to the Beacon Lighting Group results presentation for the year ending the 26th December 2021. With me today on the teleconference is Chief Executive Officer, Glen Robinson; and our Chief Financial Officer, David Speirs. Just when Australia thought we were reaching a little bit more normality, the start of new financial brought with it more disruptions with COVID than we have seen since the pandemic commenced with major lockdowns in New South Wales and Victoria and minor lockdowns in other states during the first quarter. The business had to close its doors to retail customers and therefore, traffic and sales volume was significantly impacted across the states. For that reason, we're very pleased to be able to present these first half numbers to our shareholders. I ensure you will agree that in spite of these disruptions, the business continued to perform strongly in [indiscernible] sales and profit in line with record results from last year. It was a credit to our team and our customers for finding new ways to work with Beacon Lighting to achieve great outcomes for their lights lighting projects. And our customers enjoyed hundreds of new and innovative lines that we introduced to the market throughout the half. We continue to maintain our focus on the key growth pillars of the group of retail, trade, e-commerce and new business. And embracing on how our customers interact with Beacon Lighting, whether it be with new stores, improved websites, stronger trade partnerships or new sales channels in international markets, the business has many avenues for growth across the 4 pillars. Online page -- kind of online on Page 2 of the presentation are the topics of discussion for today, as Glen, the CEO, will be taking you through the results overview, followed by David, our CFO, presenting the financial results. We'll then pass back to Glen for the growth strategy and the outlook. After that I'll address any questions you may have. I'll now hand you over to Glen to discuss the results overview.

Thank you, Ian, and welcome to shareholders to today's presentation. I'd like to start on Page 4 and review the key financial highlights for the first half of financial year 2022. The group, despite many challenges, was able to match last year's record sales coming in at $151.3 million. This result was terrific given the significant lockdowns in Victoria and New South Wales during the first quarter. Through further product innovation and new item releases, the business was able to grow gross profit margins by 150 basis points to 70% gross profit margin. With carefully managing expenses and strong gross profit margins, the group achieved a record EBITDA at $49.3 million and a record net profit after tax result of $22.6 million. In an environment with lots of disruptions in manufacturing and logistics, the group was pleased to increase inventory levels to best serve our customer demands to a record level of $83.4 million. The group has declared a $0.043 fully franked dividend per share for the half, an increase over last year's interim dividend. On Page 5, we can review some of the operational highlights achieved in the first half. The group continued to invest in our bricks-and-mortar stores across Australia with an additional 3 new stores and 3 relocated stores to optimize their performance. The trade growth pillar continues to be the #1 focus area for the business. And through the efforts of the team, we continue to grow our trade sales by 20.4%, which was great considering the disruptions to the building industry in New South Wales and Victoria. The business is growing our partnerships with our trade customers, and we now have 48,000 trade businesses in our Trade Club, up from 39,800 in December 2020. Online was an extremely important mean for our customers to continue to interact with Beacon, especially during the first quarter lockdowns with online sales growth improving by 41% over the prior year. Our new business growth pillar and in particular, the Beacon International business had yet another very successful half, growing their sales by 65%. And we continue to improve sales in the U.S. through our direct-to-consumer website. On Page 6, we can review the half 1 financial year 2022 results. During the year, the group was able to achieve sales in line with last year at $151 million, which, as mentioned, given the challenges experienced in New South Wales and Victoria, was a terrific outcome. Gross profit dollars improved by 2.3% to $106 million. Operating expenses only grew by 0.7% and an increase of only 30 basis points as a percentage of sales, which was again, a very pleasing result for the group. EBITDA improved by 3.8% to a record $49.3 million, and a strong 32.6% of sales. And net profit after tax improved by 1.8% to a record $22.56 million and 14.9% of sales. I'd like to thank our team and our retail and trade customers for helping Beacon Lighting to continue to innovate lighting in Australia and in international markets, providing the latest in technology designs and key trade products. I'll now hand you over to David to go through some further financial information.

Thank you, Glen. Our Sales on Page 8. Beacon Lighting achieved a sales result in half 1 financial year 2022 of $151.3 million, which was in line with last year. It's also important to note that this sales result is 23% ahead of the sales from 2 years ago, which was the half 1 financial year 2020. Around half 1 financial year 2022, the number of trading days which we compromised by the COVID lockdowns, were more than double the number of retail trading days, similarly compromised throughout half year -- half 1 finance year 2021. The company store comparative sales for half 1 financial year 2022 declined by 7.1% compared to last year. The comparative sales result is still very strong compared to pre-COVID sales of half 1 financial year 2020 with a comparative sales increase of 15.9% over 2 years. With the COVID trading restrictions substantially released in Q2 financial year 2022, the comparative sales result for this period were much improved. Trade sales continues to be the #1 priority of Beacon Lighting Group and it's pleasing to be able to report a trade sales increase of 20.4%. What is particularly exciting is that the trade sales result was the online trade sales increased by 70.3%, demonstrating how we are making it easier for our trade customers to partner with Beacon Lighting. Online sales continues to be a very strong sales channel for the group, with an increase in sales of 41% to $20.3 million. Beacon International with offices in Hong Kong, U.S.A., Germany and Europe continues to grow its customer base with a sales increase of 65% to $8.1 million in sales. Gross profit on Page 9. Beacon Lighting Group increased the gross profit dollars by $2.4 million to $106 million or 70% of sales. Critical to the gross profit result has been the interest in our premium product range, where our customers have been looking to upgrade and invest more in their homes and investment properties. In half 1 financial year 2022, the Beacon lighting product development team has designed and developed 231 exciting new products, which complement a core range of 3,000 products. And when combined with our range of services continues to offer great value to our customers. Operating expenses on Page 10. A time when operating expenses can be a challenge, Beacon Lighting has continued to be cautious from an expense management perspective, with operating expenses increasing by 0.3% of sales to $57.1 million. Beacon Lighting has increased the marketing spend [indiscernible] our trade customers, online marketing and social media. Marketing has also been increased for Beacon International as we are reaching out to new customers in new markets. Beacon Lighting has continued to invest in new stores and other business initiatives to support business growth. There's been a modest increase in selling and distribution expenses by $662,000 or a 1.6% increase compared to last year. There's also been some savings realized in relation to general and administration expenses, primarily relating to expenses which did not need to be gained in sales in half 1 financial year 2022. Cash flow on Page 11. Beacon Lighting has continued to generate strong cash flows with some of that cash being invested in [indiscernible], increases in inventory and the payment of additional income taxes. Capital expenses has increased by $6.2 million in investment in new stores, store refits and other projects to support growth in the years to come. Beacon Lighting has invested $4.2 million for a 50% share in a large format retail property in Northeast [ Shelf ] Australia with the 2 major tenants being Beacon Lighting and Petstock. Following on from the significant profit increase in financial year 2021, the dividend increased to $10.3 million in half 1 financial year 2022. Balance sheet on Page 12. Times of disrupted supply chain and uncertainty with [ us have a ] future supply, it's comforting that Beacon Lighting has $83.4 million in stock in our supply chain. It should be noted that this level of stock now returns Beacon Lighting Group to same base cover level that was achieved prior to the COVID pandemic. Beacon Lighting has continued to maintain a very strong cash position and finished the half year with a balance of $34.2 million. Borrowing for the Becoming Lighting Group remained modest at $20.7 million and provide the group with a strong cash position. The current investment in associates at $19.4 million represents that Beacon Lighting Group 50% investment in the large format property fund involving a total of 5 properties. At the end of half 1 financial year 2022, 1 property was fully tenanted for the entire half year, another fully tenanted property was acquired in December 2021 and 1 property that was developed for a new Beacon Lighting store opened in December 2021. There are also 2 other property projects that are currently under development. Thank you. I'll now pass you back to Glen.

Thanks, David. If we move on to Page 13 through 18, we can review our strategic pillars of growth. On Page 13, you'll see a summary of the 4 core pillars of growth that Beacon will pursue this year and into years ahead, which includes retail, trade, e-commerce and new business. If we move on to Page 14, we will review the first growth pillar, retail. We entered the new financial year with hope of less distractions, instead what we got and to the disappointment to everyone around Australia was an increase in COVID infections, especially in New South Wales, ACT and Victoria and resulted in many of our stores in those states having to close during the first quarter. Loss trading days were significantly greater during the period versus the corresponding period from the prior year. Comparative store sales were a challenge given the circumstances affecting traffic in sales volume. But we stuck to our strategy to try and continue to service our retail customers through stores, online, contact-free Click and Collect. We opened new stores in Ellenbrook in WA, Bundaberg in Queensland and Traralgon in Victoria. And we relocated stores to larger and more prominent sites in the Port Macquarie in New South Wales and Burleigh in Queensland, and we moved the Camberwell store to a new site in Hawthorn. The business closed the Paramatta store in preparation for the opening of a new flagship store in Auburn in New South Wales. Beacon now has 118 stores across all states and territories in Australia. It has an expandable network model up to approximately 184 stores, providing future bricks-and-mortar growth. Even though we were restricted through the period with face-to-face interactions with some customers, but we were still able to improve our Beacon Design Studio sales by 28% as an important way for our customers to find the right solutions to their lighting needs. Group designed and developed in Melbourne, an additional 231 new and exclusive products, which provides our customers with the latest in technology, fashion and trade products, and we're able to grow our VIP membership to 890,000 customers during the half, a huge increase of 32% over the prior period. The bricks-and-mortar retail stores continue to be an incredibly important way for our customers to view the exciting product lines and access our full service offerings. Trade on Page 15. The trade growth pillar is the #1 sales growth opportunity for the group. Our trade customers represent a significant portion of sales already for Beacon Lighting. They are important partners in our business and often make recommendations and referrals to their customers to use Beacon Lighting products. Our Trade Loyal Club has grown with members from 39,800 in December 2020 to 48,000 at the end of December 2021, and trade sales have increased by 20.4% during the half, which is a great result given the building industry delays due to closures of work sites in New South Wales and Victoria. The Beacon Trade website continues to evolve with easier user functionality, clear pricing, customer-specific purchase history and rewards all available to each individual trade customer. We have many more improvements to be launched for the website, yet we were very pleased with the 70.3% sales increase achieved in trade online sales. Importantly, during December, we announced the appointment of Damien Cummins, an expert in the electrical trade industry joining the business as the Executive General Manager, heading out Beacon Trade. We continue the trial of new trade counters in stores and are seeing these as critical areas for the trade, and the business will continue to invest in further trade counters across the network. The product design and development team are continuing to innovate trade lighting and electrical accessories range within Beacon Lighting stores and commercial sales channels. And the group invested at a record level in trade marketing with the use of radio campaigns, social influencers, search ad words and [indiscernible] to good exposure for Beacon Trade. E-commerce on Page 16. E-commerce continues to be a critical resource for our customers and the business to interact and to provide the right solutions for our retail and trade customers during a period where many of our customers were unable to visit the stores. Online sales increased by 41% to $20.3 million, representing 15.4% of retail sales, which is a very significant step-up for the business during the half. Online trade club sales in visitation was very exciting during the half. Customer visits have increased by 73.4%, transactions increased by 81.7% and online trade sales grew by 70.3%. The online team continues to surprise our metropolitan retail and trade online customers with 3-hour delivery service. The group launched our direct-to-consumer website in the U.S. And whilst it's still early days for that website, we're happy to start to build some greater awareness in the U.S. market for the Beacon brand. The business also launched new websites for Fanaway, Lucci Air and Beacon International to build brand awareness. Most importantly, the group continues to invest in our online channels as an important way for our customers to get inspiration, services and product when and how they want. On Page 17. The final strategic growth pillar is our new businesses. These emerging businesses offer the group opportunities to invest and grow the business outside of our retail trade and e-commerce core. Beacon International remains a standout performer in this growth pillar. Beacon International leverages the items designed and developed for the Australian business and uses those products to generate sales in countries all over the world. Beacon International was able to grow it sales by 65% to a record for the business for the half of $8.1 million. Lift in sales experienced in the international business was a combination of new customers and current channels experiencing strong demand. The U.S. team were able to grow the number of active customers by 130% over the prior December 2020 result. This pipeline of new customers will prove to be very important to the future success of the business in the U.S. The group also established a new sales channel with Tmall Global selling ceiling fan into the China market. Custom Lighting improved its sales by 32.6% over the prior year and Masson For Light increased their sales by 18.4%, which given the disruptions in projects during the period was a good effort. The property trust completed development works at Traralgon, creating a beautiful new Beacon Lighting store to service that regional area, along with a new property trust acquisition at Modbury in South Australia for a property which includes tenants in Beacon Lighting, Petstock and 2 other minor tenants. Sustainability on Page 18. Beacon Lighting Group is aware that we will have a part to play in reducing our impact on the global environment. In fact, Beacon Lighting has been helping our customers to utilize innovation in lighting and ceiling fan technology to reduce their power usage at home for over 30 years, but there is always more that can be done. Beacon Lighting over the past 5 years has installed solar systems on 61 of our Beacon Lighting stores. Along with the use of timers, sensors and the most energy-efficient lighting, we've seen a marked reduction in the energy we consuming each day at Beacon. In addition to our efficiency efforts, the group was awarded the Australian Packaging Covenant Organization, Outstanding Achievement Award for sustainable packaging. And improved packaging greatly reduce, if not eliminates, the use of [indiscernible] packaging and limits the use of nonrecyclable materials in our packaging. On top of this, the Lighting Council awarded Beacon Lighting with the Sustainability Award for our long-standing commitment to advancing the sustainability and environmental aims at the Lighting Council and the broader industry. On Page 20, we can review the current outlook for the Beacon Lighting Group. For the first 7 weeks of the second half of financial year 2022, the company store comparative sales have made a very encouraging start and we look forward to less COVID disruptions in the second half compared with what we had in the first half and continued sales success. Trade will continue to be a major growth focus for the second half with lots of work going into the future launch of our new Trade Loyalty Club, new trade products, improved customer experience, rewards and further marketing. Beacon International business is in a very good in-stock position to kick off the Northern Hemisphere summer, and we're excited to continue to grow that business. We will continue to excite our customers through our design and development team, introducing new and innovative lighting and ceiling fan products to our retail and trade customers, and we'll continue to work closely with our manufacturers and supply chain partners to ensure continuity of supply is maintained. The Property Trust will develop new sites in Auburn, New South Wales and Southport Queensland into future Beacon Lighting stores, and we'll open new stores and new Beacon Lighting stores in Butler, in WA and Tuggerah in New South Wales and conduct some renovations and investments into other stores across the network. There are many exciting opportunities at Beacon from growing and optimizing the network of stores, enhancing our online sales, building stronger relationships with our trade and growing internationally. We look forward to providing our customers with the most innovative lighting, ceiling fans and electrical accessories for the residential home. I'll now pass you back to Ian Robinson to direct any questions. Thank you.

Thank you, David and Glen for your presentations. Ladies and gentlemen, we're now available for questions.

[Operator Instructions] We do have our first question. Our first question is from Sam Teeger from Citi.

Our gross margins are really strong, particularly given the growth of some of these lower-margin emerging businesses. I imagine there's less discounting going on in the market, but any additional color around gross margins would be helpful as well as how you're thinking about second half gross margins?

Yes. Look, they are very, very strong. Some of it was brought about through premiumization of product. So we find that customers at the moment, probably through the wealth effect and house price growth are electing to put higher price products into their home. We also introduced a number of new lines, as we mentioned, throughout the half. And we've got a relatively long tail of inventory within the business, and a lot of that has the benefit of a higher U.S. dollar costing rate in it. So thinking through that, whether we're able to maintain margins at that record high level into the second half might be a question, given that the Aussie dollar is not where it used to be in relation to the U.S. dollar. So we probably anticipate margins coming back a little bit in the second half.

All right. And just wondering what's the appetite for the group to continue buying properties in a potentially rising rate environment?

Well, the reality is we're going to need properties for our stores for a long period of time, and we typically don't move out of that property. So rates go up and down, and we don't have -- we have very little borrowings on any of those properties. So as long as we cautiously manage our gearing on the properties and we pick sites that we believe will be in for the next 20 to 30 years, I think short-term up and downs probably not as relevant as the long-term ambition for owning more sites across...

Sam, I think the large-format sector has done extremely well during this period, most of the landlords are quite transparent to that issue and their expectations are fairly advanced in what they want to see as major increases, and it's an important part for us to say we have different options to be able to not continue with that site and have other alternatives to develop sites ourselves to negate those increased expectations from the landlords.

Right. And just maybe on the trade part of the business. I think at the last result, you said trade was 20% of sales. I'm not sure if you quantified it for the half, just keen to understand where is it now? And any color around how much higher trade marketing -- marketing in the trade was in the first half compared to PCP? And if you're amending the hours at the stores for the trade from the [ 7/31 ] times?

I'll start with the last question first. [ 7/30 ] is still sticking around, and we'll evaluate some stores in the network where they need to open up earlier than [ 7:30 ]. There are some key locations across the network, which would probably suggest that we could open up those stores a bit earlier. Trade marketing was an increase over last year. We haven't stipulated exactly how much that was, but it was definitely an increase over last year. And we're putting the plans together for the second half and going into next financial year and we will continue to spend a greater portion of the marketing fund across the trade. That doesn't necessarily mean that we're spending more in marketing, it just means we're targeting both trade and retail customers because there is a bit of a halo effect you target the trade customer you also do capture some retail customers as well. It just means we're pushing some of that retail spend across to the trade spend. So that was the store opening hours and the trade marketing spend. What was the last question? There was percentage of sales, yes. We haven't broken that out yet either, Sam, but...

I could say that, that could definitely grow.

Definitely increasing. And it is a metric that we do keep a close eye on, in fact, by store, by state as an important way for us to see our success in selling more to our trade customers and the percentage of how our Trade Loyalty Club sales are improving as compared to our retail clubs -- retail sales. So it is definitely improving. It has been improving over the last 18 months. And I'm very pleased with how we've been growing in that area.

Our next question is from Keegan Booysen from Jarden.

Just following up from Sam's first question on gross margins. If you look at the last 3 halves, they've been around 300 to 500 bps higher than where they were pre-COVID. I appreciate there's a lot of factors going on there, particularly around FX and freight rates. But it sounds like there's probably a structural argument to be made, why gross margin should remain above pre-COVID levels. Again, we're taking aside the mix changes with trade then actually on the business. Do you share that view? I mean, it looks like [indiscernible] seems to be reset a bit lower, you're introducing more exclusive products and some price increases coming through. Is there an argument there to say that gross margins probably shouldn't revert back to pre-COVID levels in the future?

Again, I think one of the impacts about our margin is, obviously, we have a long tail in our stock, sometimes 8 months in our stock. And in effect, and we -- the way we sort of determine our cost of goods sold is based on fivefold method, so first in, first out. So really what we've been selling have been 8 months ago. And obviously, the Aussie dollar was much stronger then. And obviously, freight has continued to increase as a result. So I think that a key point is it's certainly a new point of reference for us as distinct from the pre-COVID levels.

And some of the freight increases have been quite extreme and probably haven't been fully brought into the current stock on hand. So we expect that freight will -- even though we have seen some stabilization in freight cost, it's still a lot higher than what it was, say, 2 or 3 years ago. But on the flip side of that, I think we've also been doing a good job on the innovation of the product ranges. So at a retail level, bringing in those more innovative type products. As I mentioned in the past, different technology and different materials that we're using have enabled us to have something very unique in the product range and therefore, probably able to improve our gross profit margins. And of course, the demand has also been quite strong over the past 18 months. So that has definitely helped us well with. I don't think we'll be -- the other small consideration probably is we used to have the solar business, which was quite a -- a very low margin business before COVID, that is. And that business is no longer in the group. So that isn't as much of a gain on the gross profit margin as well.

No, that's satisfied. And then -- sorry...

I think the sort of way into the mix is -- even the future is that we're obviously growing strongly in the international markets. So we expect those wholesale businesses will not be making the same margins in our sort of wholesale retail -- retail business done in Australia.

No, sure. But I think if you just think about retail as a stand-alone and you introduced a more exclusive product, that's more likely to continue going forward. I mean, that should fundamentally change the margin structure, the gross margin structure from a retail perspective anyways. I mean that's probably more what I was trying to get at.

Yes, that's exactly right. And that's been a strategy for a while. We've just got to keep on coming up with different concepts and designs and the buying team, they've been working terrific even though they haven't been able to travel, obviously. So we've been doing a lot of virtual buying trips, and the design and development team have come up with some great concept. So that's probably the biggest part that's happening the margin at the moment.

No, that's great. And then just secondly -- first, a fantastic high on appointing Damien to lead the trade business. Just wondering 2 months in, if you can give us sort of first impressions of what do you see and what the key initiatives that you guys have for him and maybe what he'll be focusing on bringing to the business early on?

Yes. Look, it's great to have someone like Damien in the business, pragmatic, very operational, but also can do the strategic side as well. Understands the industry incredibly well. He has lived and breathed that industry for years. And here we are at Beacon, I must have mentioned team our retail is at heart. So it's great to be able to get someone who understands the trade industry so well. I think he's identified a lot of opportunities across -- it's only been a couple of months, but across the network of stores, the disparity between the really successful stores in trade sales and the other stores that are not as successful, how we can get some more consistency across the group, identifying key trade clients that we need to really have a focus on. Yes, there's a lot of things that he's been involved in and should continue to be very valuable for the trade growth.

I think the important part to understand is that we don't have the intel regarding the accessory market where Damien has that. And bringing those new accessory lines into the business will be incremental sales. So a very important pie to get that right to make sure you've got the right kind of product, which would push out incremental sales in accessories.

Our next question is from Aryan Norozi from Barrenjoey.

Just the first one for me around the first, second quarter momentum and into the third quarter to date. So just correct me if I'm wrong, but on my numbers, like-for-like were down [ 10% ] in the second quarter, but you're cycling a pretty big comp, open to invest 23% in the same time last year. So it's still well [indiscernible] 2 years ago. And you call that encouraging. When you're saying encouraging in the [indiscernible] update or the outlook commentary, are you suggesting that sort of similar momentum has continued into the third quarter? Or is that [indiscernible] region?

I think David might have a different perspective.

I think we used the word encouraging because we think it's possibly -- and I think it has been in the work 12 months ago.

I think like-for-like [indiscernible] off in the first quarter and recovered in the second quarter.

That was a strong year. And Q3 last year, it was also a very strong quarter for us. And we're building on that strong results.

Is it fair to say the momentum that you exited in the second quarter has continued into the third quarter. Is that fair?

From the second quarter...

Yes. Just in terms of demand, there's a lot of changes in terms of what you're [indiscernible], but just in terms of dollars that you sell to customers, like the momentum putting us in seasonality. Is the momentum pretty consistent into the third quarter?

It's probably improved a little bit.

Building, yes.

Q2, it was better than Q1. It looks, 7 weeks in Q3 used to be better than Q2.

Okay. Perfect. Just second one for me. Appetite for M&A in the trade business. And there's a lot of smaller companies. It's a pretty fragmented market on the smaller end of the town and trade in my mind is a pretty relationship type business. So what's the appetite from M&A perspective there, I suppose?

At the moment, we're focusing on growing our own business in trade. We've got a well-known brand in Australia, being Beacon Lighting. We're trying to build the Beacon Trade brand. We're putting money behind that brand, and we're putting time and effort behind our 850 team members in these stores that we have and focusing on product development. So yes, if there was an opportunity in M&A, we would look at it within the trade area. It would have to be quite specific to what we would want. We're not particularly interested in buying a wholesale -- electrical wholesale type chain. Yes, we've got views on where we believe those markets will be going in the future. But if there was something that made sense to our business model, then we would consider it. But at the moment, we are really focusing on growing it internally.

Yes. I think our investments in the future will be into the stores to facilitate those extra sales that we're hoping to get through the trade, and we need to have larger stores. And we may need more stores because servicing the trade is a convenience sale. So you won't have your trade traveling 10 kilometers to a Beacon Lighting store, they'll go to the nearest wholesaler. So in all probability that will mean we need to look at the network and see that we've got appropriate coverage.

Okay. So you see very quick update there?

The investment and therefore, needs to be in our own stores.

Okay. Just very quick one, please. Just around the marketing, it's historically been around 6%. It's slightly sort of starting to build back up, but still well below historical levels. Is there a change in terms of how we should think about it in marketing, could it be scale? Or should it revert back to those levels over time?

I think we'll be trying to look for efficiency in all areas of the business. Marketing can be a bit of a funny one, of course. We always try to get efficiency out of marketing. But when you're entering into, say, new markets like the U.S., we might have to spend ahead of our 6% usual ratio for that particular market, as we're trying to drive customer acquisition. And likewise, here in Australia with our trade ambitions, yes, we might need to be putting a little bit more effort and money behind growing our trade marketing to reach those customers and grow that business quicker. So I think we're going to be flexible with our marketing. I mean we totally understand that if we grow that expense, it's going to -- there will be a cost to the business. So we've got to just weigh up those costs and hopefully achieve greater sales through the marketing efforts that we bring about.

Okay. Last one, just cash conversion, please. Like given the fact that these emerging businesses are becoming a bigger part of the business, how do we think about how cash conversion just kind of full year [indiscernible] half to half working capital spend, but just how we should think about cash conversion from the full year met moving forward please?

I think obviously, we're trying to grow out the trade business and trying to grow the international business, that's all done on mostly on cash. So we expect that to sort of take a bit more of our cash. And [indiscernible] 2 weeks, obviously we're continuing to sort of to probably build our inventory because in effect, there are a lot of challenges at the moment. So that also may take some cash as well.

Our next question is from Raymond [indiscernible] from [indiscernible] Australia.

I just had a question about the store network and that expanded quite a lot over the last few years from 146 to around 184, I think. And I know you've done quite extensive research. Are you able to provide more details about that?

So that's the network plan extended. That's not the actual stores, obviously. Yes. Well -- yes, yes. So the network plan has been done on a consistent basis from the same provider over -- probably over a decade, in fact, over a very long period of time. But what we find is that new markets do open up. The key sales metrics of the stores have changed over time. They've become more profitable. The areas that we would sort of look at in the past where you might look at a regional town and might say first year sales might be $800,000, $900,000, we would say we're not interested in going there. You wait a few years, and they end up being $1.1 million, $1.2 million store for the first year. And at that point, they start to become viable opportunities. I think that's why the network plan has expanded over time. If we think taking into account for our network plan, it actually doesn't include any trade sales as well. This is purely retail sales. So if we can go into a regional area where we believe we can get stronger trade sales out of, it also makes it a more compelling area for us to be able to go into. So that's why you probably noticed in our recent stores that we've been opening, the likes of Bundaberg and Traralgon, they are more regional areas where we think we can grow a decent size of that market share and make really profitable Beacon Lighting stores out of them.

And also just one more question, just about the international expansion. I know you spent a lot of years working on developing relationships on the wholesale front. And that's, I guess, as origin and establishing the sales channel in China. And are you able to give details about the challenges in the process that you've gone through to how you established those channels?

If you're talking about our supply chain partners throughout Asia, their relationships that we've developed over 30 years of going 4 or 5x into China and Taiwan and other countries. So you don't build that up overnight. And I think it's a great asset for the business. We've got over 40 people on the ground up in those markets working with us, looking after our best interests, doing quality control, quality audits, shipping processing, all the rest of the stuff. And as I said, those -- that process and relationship doesn't happen quickly. It's been a long time to build that up.

You need to meet standards all to the world. So the standard for Australia is different what the standard is to Europe and then the standard for America is different for what it's in Europe and Australia. So you've got to have the capability, engineering expertise to be able to do that. And our long-standing relationships with -- we basically call them business partners, they do have a minor sharehold in Beacon Lighting, which they're very happy about. It's been a great exercise. And we started off with one generation, we're into the second generation in both [indiscernible] at the moment.

Yes. And I think it also comes from our passion for the product, Beacon Lighting is -- we want to be the most innovative lighting company in the world. We bring out over 600 new products every year, which will be a greater amount of new product development than any other lighting business in the world. So we figure we should be able to sell those items into other countries. But it is very much a passion but Ian and myself and my brother as well, Scott, in our product development area that we like to see and develop the latest products and have a strong team up there to be able to support that development.

Our last question is from Sam Teeger from Citi again.

Okay. Just a couple of quick follow-ups. Any comments on light source solutions and what's happening in the street lighting market? I guess some of the [indiscernible] we're doing you suggest -- why not be going in some of the other businesses you have?

So that's the connected light solution service business is the roadway business. Look, they're performing pretty -- it's a stable business. It's certainly not disappointing, but it's not growing at the rate that we would probably like our emerging businesses to grow at. But these things can jump around relatively quickly depending on which councils or [indiscernible] take up the product lines that we've got. So traditionally, we've finally really been selling the class of street lights called the [ 34 P5 ], which is mostly residential-type roads rather than main roads. But we're just about to release our [indiscernible] series, which is for the main road application. And we've also designed quite a lot over the last 12 months of a new type of LED like light, which is retrofittable into the current light fittings, street lights that are out there. And that's been a big success for the business. So now we'll continue to grow that business. The team is very passionate and they're quite autonomous in the way they operate their business. It doesn't put a long much -- much management impact on the rest of the team across Beacon Lighting. So we're not disappointed with their results.

I think we've got some reasonable good expectations. They're saying it does depend on the contracts that you win, but they've innovated new product lines as well. They've built their gross margin, they're profitable. As well the emerging businesses, they are all profitable and might not be quite as profitable as we want them to be, but I think roadway is certainly one that has strong potential.

The other benefit to that business, Sam, is that it gives us access to the GE brand as well. So with that GE brand, we can develop products under the GE brand and bring them in through the Beacon Lighting stores. And that's particularly important for our trade customers who immediately recognize the GE brand and have -- and has a fair degree of credibility across the trading customers.

Right. Okay. And just in terms of the U.S., your guys are running some Google AdWords campaign in the first half, just keen to understand if you are happy with the results? And what's the plan for second half around U.S. marketing?

Yes. Look, it's going to be a slow [indiscernible] with the website. We've definitely launched a very capable website built on a terrific platform. A lot of businesses that would enter a market like that or try to set up in the market wouldn't have the luxury of being able to build on such a solid platform, their websites. The website is working well. The customers are interacting with it. Orders are going through and they're getting deliveries. So that's good. But we've got to be realistic that Beacon Lighting has a great brand and awareness in Australia. And in America, it doesn't have that awareness. So we're trying to build that through Google AdWords and social posts -- paid social posts that is. And we'll continue to do that to try to build customer acquisition into that B2C website. But it won't be our only channel, obviously, in the U.S., we've got 3 channels over there. We've got our own B2C. We've got the Menards DIY chain. We've got the marketplaces like homedepot.com and wayfair.com. And then, of course, we've got the last one, which is our agency sales across the lighting and furniture stores across America. So yes, there are multiple channels for us to succeed in that market. And the B2C is just one of those that we'll continue investing in to grow customer acquisition.

And we see them all as being quite important. They are all interrelated because to build the brand, you're going to need critical mass, you really need all those 4 channels to really get the brand moving in the U.S., having the lighting stores spread across America supporting the brand is an important part as the big box retailers and the other online marketplaces. So for us to be successful in the U.S., we're going to need all that help to go together across because there's big players there like Amazon and what have you on that. They will be, to a certain degree, the preferred position to be able to buy, but we want to carve out our position in the selling fan market and we think we can do it by various ways.

Right. And then last question, just the 3 stores opened in the first half, you're planning another 2 in the second half. How many superstores versus regular stores?

So we would say that you would have seen in there the Auburn and Southport stores. They're under development with a property company at the moment. So they will be superstores. From the new stores that have just opened, which is Ellenbrook in WA, that's a very hot market for us. Bundaberg is a very good town, so it would be a very good and successful store for us and even Traralgon, that's probably been open up since December and it's been exceeding our sales expectations already.

When we do a renovation, it's basically the same investment is what we have for a new store. A renovation is not a small renovation, it's equivalent to a brand-new store. So we did 3 major renovations. And which one are those?

Yes. I mean [indiscernible] some about the relocated stores. So Burleigh -- we moved Burleigh to Burleigh. And Burleigh -- the new Burleigh is absolutely a superstore, no doubt about it. And we've moved Camberwell to Hawthorn. I believe Hawthorn will be a superstore, historically opposite the Bunnings site in Hawthorn, 1,000 square meters, which if anyone knows the Hawthorn area, it's very difficult to try to get 1,000 square meters in that location. So that will be a superstore and we moved the Port Macquarie store, which was already a good performing store, but we needed more space there, and we put that in the -- right next to the Burleigh store up in Port Macquarie, and that has the potential to be a superstore as well. So of the relocated stores, we've done those to really optimize their performance. But of the 3 opened stores throughout the half, they're just more regular infill stores. For the future, though, with Southport and Auburn, they will definitely be superstore in our eyes once we get them open.

Thank you, Ian, David and Glen, we have no further questions. So I'll now hand back to you, Ian. Thank you.

Yes. Thank you, ladies and gentlemen, for your interest in the company, and we look forward to talking to you again in the future. Bye.

Bye. Thanks, everyone.

Thank you, everyone. As your host has closed the call, you can leave by disconnecting your phone line. Thank you for attending.