Bapcor Limited (BAP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Bapcor Fiscal Year 2026 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Chris Wilesmith, Chief Executive Officer and Managing Director. Please go ahead, sir.

Thank you, operator. It's a privilege to be here today with you all and certainly a privilege to serve the team and the shareholders as we develop and move our turnaround journey forward. I'm joined today by our Chief Financial Officer, Kim Kerr. And I remind everyone that you will only be able to participate in the Q&A session if you've joined via the dial-in and not via the webcast. Today's presentation should be read together with the Appendix 4E financial reports and the ASX release issued this morning. Now turning to Slide 3, if I could, operator. I'd like to acknowledge the traditional custodians of the lands that we operate in across Australia, New Zealand and also Asia and acknowledge that Bapcor embraces building communities together in our multicultural nations. Today, we're on the lands of the Wurundjeri people, and I'd like to acknowledge and thank them for this day. If I look at also the people that I would like to acknowledge 5,500 team members that I'm very privileged to serve in the role of Managing Director and CEO. These are good people. And as today, I would say the reflection in the performance is certainly not that of the effort, the willingness and the commitment that this team are making towards our turnaround. They are really amazing people that in the last few months have made a tremendous difference that we'll talk to during the presentation. I'd also like to acknowledge what is largely a new executive team that are actually leading the organization, Kim Kerr, certainly Marty Storey, Craig Magill and then Rebekah Newman, Angus McDonald, Morris Lieberman, George Sakoufakis. And equally, I'd just like to thank all of them for their support of me as a leader in this turnaround. Today's presentation is structured -- moving to Slide 4. Today's presentation is structured in 5 parts. We'll begin with group highlights. We'll cover off the performance of each segment. I'll hand to Kim then to take us through the financial summary, and I will close with the elements around our trading update and outlook for the coming year. Turning to Slide 5, please, operator. F '26 is certainly a year of reset. And you will remember that I came into the organization, and we first talked back in February as we started developing the turnaround plan for the organization. Clearly, statutory results are disappointing, but I want to highlight some of the elements that really are very clear signs of the momentum and the reset that's occurring. Fundamentally, this is a good business at the foundations, but it does need reset and the critical elements of the turnaround to really take us forward to where we want to be. $1.9 billion in turnover. That was a reduction year-on-year of 1.8%. EBITDA was $152.5 million, which was above our top end of May guidance range. Underlying net profit after tax was $10.8 million. Clearly, these results are at a lower level than we would expect in the future. Importantly, we delivered $68.5 million worth of working capital initiatives in the second half, in line with our commitment -- and it is really pleasing to have seen our cash conversion rate actually increased to 109.4%. reduced net debt to $135 million. And if you think back to the half year point where we had a debt of over $400 million, it's fair to say that the activities and also the capital raise have put us into a significantly better position for the future. The statutory loss was recorded at $431 million, 99% of which was primarily relating to impairments of goodwill trademarks across the segments that we operate. The results were impacted by certainly the challenging external environment, the Middle East conflict driving higher costs, certainly the weaker impact, the weakening of our economies, both in Australia and New Zealand and the real impact that, that's had on discretionary spending across the consumers and workshops that we actually serve. Back in February, when we announced the turnaround, certainly, there was no war in the Middle East and nor were the impacts and inflationary pressures that have been felt in the last few months. Hopefully, with a little bit of normality in the future, this will only help building on the great foundational work we've done across the organization, which we'll talk to in the coming slides. Turning to Slide 6, if we could. The turnaround plan when I announced it back in February was primarily focusing on, first and foremost, the team and actually what the customer required to meet their demands of us as an organization. We've been focusing on key priorities, which have been absolutely centered around profitability improvement, optimizing costs, improving capital efficiency and returning the business to growth. We'll talk about this shortly, but we have certainly changed the direction of the momentum of the business. The next 4 slides will summarize some of the actions we've taken between that February and June period and the priorities that we're also looking at as we move into FY '27. While there's a lot of information on these slides, I will highlight the sections of the key actions and progress made across each of these areas. What I'm very pleased to say at the highest level is that we have significantly reduced turnover of our teams, and we're actually improving customer satisfaction, and I'll talk to that more in the coming slides. That is absolutely enhancing and putting us in a good position to increase our profitability. We're also happy to talk about how we've improved our competitiveness across the business. Some of the challenges when I first arrived and we talked to the availability of stock in the right location in-store discounting that was running at elevated levels as our team tried to compensate for uncompetitive prices in that market. And this was something seen across all of our business units. What I'm happy to say in the second half, we were able to take quick action around a number of these key focus areas. Competitiveness, I'm happy to say now that we have actually looked at our pricing in our trade businesses with over 80% of all prices being reviewed to put us into a competitive pricing market for our customers. This has been well received. We tightened controls around overrides and price discounting, reducing the discounting by 16% now running at around 8%, and we still see more improvements that can be made. In our retail businesses, we've changed over 13,000 prices to ensure that we are actually both competitive and maximizing profit opportunity while ensuring the value at our consumer levels are in line with their expectations. F '27 focus is certainly the building on through the introduction of data-led pricing management. We started introducing that across the business units, and we're actually seeing positive momentum and margin improvements as we mature that capability across our business. Moving to Slide 7, optimizing our cost base. This summarizes a number of priority areas in our turnaround because as I talked previously, our cost of doing business at total organization needs to be reduced significantly to achieve best practice performance levels when looking at competitor sets. There is a big opportunity here. In relation to costs, we're operating in a significantly elevated cost environment, whether that be cost of goods, fuel, freight, local, international. However, during the second half, we've established a number of key activities that are reducing the cost. I've talked previously about high cost of recruitment and also the cost of our supply chain. We've been able to establish in-house recruitment functions now no longer reliant on external high-cost providers. reduced higher cost of emergency orders, which were right throughout our organization. We've implemented supply chain labor efficiencies. And in the last 4 months, that already was delivering at over a $2.8 million saving just in the efficiencies in our supply chain. A lot more to do, but starting to build momentum. F '27, the focus is to drive and continue cost out where nonproductive activity is occurring. We've got review of actually some $300 million worth of nonstock purchases occurring. The opportunity is great. We're increasing our capacity to undertake effective competitive tenders and reviewing, where we can remove price cost out of our organization. Moving to Slide 8, strengthening our capital efficiency. This is a big area of focus and very happy to report that in the second half, we were able to reduce by a further $14.5 million our overdue debtors. That's a 35% reduction on the first half where we opened in January. Significant work by the team, and we're continuing to make improvements in that space. We reduced our overall inventory in the business, which was a change from many years of escalating inventory being held in our organization. We reduced by some $22.5 million significant opportunity still. We started introducing programs, lowering minimum order quantities, reduction of excess stocks, working very closely with our trade partners to remove nonproductive inventory and while improving the in-stocks across our organization. Our capital efficiency focus on inventory reductions will continue and build momentum as we move into this current year. What is very pleasing, however, we both reduced inventory while significantly improving our in-stock in the stores and branches across our organization. When I talked back in February, we had some business units with in-stock levels at branch and store in the range of [ 50% through to 80% ] in stock available for customers. Today, all of those business units are sitting over [ 90% through to 96% ] in stocks, and we're aiming for 98%. As the consumer confidence and also available discretionary income improves, we're in a very healthy position to start capitalizing on those sales -- the sales momentum out of having the right stock. While we continue to work closely with our trade partners to ensure that the future health of our inventory, particularly around EV, hybrid and also the China manufactured vehicles, which is representing a significant opportunity. Many people talk about the impact of EVs coming into the marketplace. I would say you this is an enormous opportunity for our business that we're very aware of -- these are heavier vehicles. They wear out parts like suspension, steering, braking at far more significant rates, and it represents a terrific opportunity. while also calling out that the aging car park is still boding very positively for sales momentum of ICE vehicle parts. Moving to Slide 9. This slide covers initiatives to return our business to growth. I've talked about the organization's power of expertise, knowledge and our connection with customers before. And the reduction of team turnover is very significantly contributing to the positive momentum as we reconnect with our customers. We've got the right price. We've now got the items in the right locations and our team are reconnecting with our customers. I'm very pleased to say that we've had a 15% reduction in the turnover rate since December as we closed at the end of the year in June, and we continue to build momentum in reducing the turnover rate. And I'm very pleased to say that we've got a number of prior team members starting to come back to our organization as well as some very pedigreed retail automotive and trade experience coming back into our organization. We've been investing in our leadership training and happy to say that we had our first 80 senior frontline leaders go through the Beacon leadership training program before year-end. And by the end of the calendar year, we'll have some 200 of our leaders that have gone through that program of developing skills and leading and running organizations. In F '27, our emphasis is on improving our team engagement and now moving into network expansion, particularly in our trade and networks and New Zealand businesses, while we need to look very clearly at what is the optimal footprint in some of our other retail businesses before we start looking to expansion of those businesses. I do want to acknowledge that the growth and the future of our organization is very much linked to our trade partners. And I want to acknowledge and thank our trade partners. We've met with many of our very significant trade partners and their support of the turnaround of our organization has been overwhelming and humbling. I think those partners as we now form and build more strategic partnerships as we build forward. Moving to Slide 10, please. As outlined in our previous 4 slides, we're working to recenter the business on customer, team first, customer fascinated. And what I'm very pleased to say is that over the months and certainly building momentum in the second half, the slide to the left is actually our Net Promoter Scores across the 3 channels fundamentally that we play, trade, our networks businesses and also retail. You can see that all of the customer measures are starting to trend up. Clearly, the aspiration is to have a best-of-breed outcome somewhere near 80, but it's very pleasing to see now a consistent positive trend. Very clearly, what was significantly called out price and in-stock is now starting to really be removed from the feedback that we're receiving from our customers. We're meeting what they need. And I'm also pleased to share the graph on the right-hand side of the slide is now confirming that we are picking up after 5 years of successive decline in our market share. again, further confirming that as the consumer and the trade workshops start coming into a more stable environment, we are well placed to continue building on our share momentum. 2 quarters in a row, still a long way to go, but certainly positive momentum. I'd like to now move to Slide 11. It's fair to say that the building of the turnaround strategy team led. But as we are now moving into the next stage of the growth of our organization into the future, it is critical that our strategy around growth and performance improvement is in place. I'm happy to announce that we've been running in parallel with our turnaround program, the development of our strategic plan. We've involved our team, our customers, experts and senior leadership team. We are well progressed, and it is unquestionably about how do we also simplify a very complex business. And so for many that have been asking what are we going to be doing, I can say very confidently that the strategy will address the simplification of this business, allowing us to focus more specifically on the core elements of our business and our future success. Bapcor has many strengths. And what I will say that over the last 6 months, I can only reconfirm that this is a good business. There is significant customer demand for what we offer. Our trade partners are fully engaged. We have a good team, and we're building a path to our future success. I'll now move to Slide 13, if I could. I'm now going to talk to some of the segment growth. But before I turn to that, the underlying strength of the Bapcor platform is strong. Our ability to evolve into the future, the trusted brands that we have relationships with, our extensive network of some 900 touch points with customers across the countries we operate is formidable and enviable across the competitor landscape. We are known historically around experience delivery, the expertise of our team, availability, delivery and fair value. This is what we're focusing on as an organization to build us back to the organization we want to be in the future. Moving to Slide 14. What I want to call out is a very significant change in momentum in a very constrained economic environment. I want to really highlight to you that in the second and the 5 months very specifically after the announcement of the turnaround strategy that we moved very significantly most of the operating business units from significant negative growth. And as you can see on the slide in a like-for-like basis, the first 7 months was running at a negative 2.7%. In the remaining 5 months, we ran at a positive result. Although the number is small, the overall movement from the starting point of 3.1% is something that certainly is a credit to the team, and it is an absolute affirmation of the strategic elements that we've put in place are starting to build momentum. I will say that it didn't happen as quickly as I would have liked to, but they are the right things that will build us forward. In total growth for the organization, taking into account store closures and rationalization, the right stores being removed out that were nonprofitable is certainly equally setting us for the future, but 2.7% movement from the first half moving toward to neutral, as we continue to build momentum to positive growth. I might now move to Slide 15. To start now talking through some of the segments and very -- firstly, I'm going to talk to the overall performance. Clearly, disappointing at a 1.8% decline year-on-year. But if you looked at the contribution of the growth that we've seen in some of our businesses and particularly in the trade and the specialty wholesale business that contribute 72% of the growth of the organization. The recent improvement in momentum in those areas, which I'll talk to a little later, is certainly giving me confidence as we move into F '27. I'll move to Slide 16, please. Well, I'm pleased to certainly not present the numbers in terms of the year that was, but I am pleased that the change in the second half momentum after the appointment of Craig Magill back into the leadership of the Trade business is starting to see a positive impact. Momentum is changing, and I'm happy to say that in some of the key and core elements of this business, we are starting to see growth. Craig is a 30-year automotive pedigreed executive. He's also brought people back into the organization that had left previously at senior leadership levels and they are having an impact. I'm happy to say that the market share growth that I talked to before is very significantly coming out of the initiatives and the energy that Craig and the team are bringing back into the business. Quarter 4 and F '27 is really building momentum. We're now seeing growth into the 2-plus percent range in that business. EBITDA margins declined, reflecting what was a very poor historical pricing management, low pricing disciplines, and they are very directly related to the overrides price discounting that I've talked about before. Pleasing the second half showed positive momentum. Parts growth was running at around about 1.2% in that second, and I've made mention that we're now seeing growth over 2%. We continue to be constrained in the tools and equipment. That's a heavy tools and equipment component of our business, which represents about 10% of trade. There are turnaround plans in place, and we will continue to monitor that business very carefully in the coming months to ensure that we return to a healthy position. We are growing the network. And this year, there will be an additional 5 branches that will come on stream. The trade business, the branches in the right place, the right size are a very profitable business. Turning to Slide 17. Networks, I'm happy to say that the clear momentum change that is occurring more and more in that business is certainly a credit to the individual team, but also I'm happy to say that the appointment of both Angus McDonald, our Chief Operating and Strategy Officer, which Networks reports into and more recently, Guy Nicholls, a pedigreed CEO, someone that learned from the ground up on the tools to being the CEO of a number of automotive businesses, joined us to lead our CVG and Truckline businesses, 50 years of pedigreed automotive executive experience. So what are we seeing? EBIT increased by 7.3% to $67.7 million. reflecting the cost of doing business benefits from the prior year operating model review and consolidation. The segments that are experiencing disruption back in that period are showing positive momentum. The terrific leadership of JAS under Daniel Torre is having a significant build and continues to grow up 6.8% on the prior year. CVG, as I mentioned, remains challenged Guy Nicholls only joined some 6 weeks ago, but the momentum under his leadership and the growth that we're seeing in recent weeks is very positive. To also just acknowledge that our wholesale business under Chantelle's leadership is really significantly building the momentum. So overall, Networks is starting to show very clear and positive momentum. Turning to Slide 18. Retail is really a moment where we need to look back to what the business was expertise, service, great brands and fair value. We're rebuilding the Autobarn business into the future. The performance improved materially throughout the year. It was a very challenging first half. Momentum in the second half as our operational initiatives gain traction are showing very positive green shoots. Like-for-like sales returned to a growth in the second half from a very significant decline in the first, 1.4% and is supported by targeted promotional activity, Hyperdrive focusing on operational disciplines and execution in the physical environment. Earnings momentum improved significantly in the second half from operating improvements that have been embedded in the second half period. We accelerated and grew our loyalty program. I'm happy to say we've got over now 2.1 million members, and this is a significant opportunity to be leveraged through closer and more targeted relationship connections with those customers moving forward. We've also continued to work very specifically on range and in-stock across the network, improving from some 80% to now 96% in stock. There are new brands being introduced, roof racks, tools, refresh and a focus on how we use every square meter effectively in those stores. So watch this space a lot to happen in the coming years. I'm also talking about the very positive impact that the introduction of data analytics around pricing in promotion on shelf, making certain both value is delivered to the customer that we're competitive while making more profit, and it's actually very positive signs in the first part of F '27. I am now moving to New Zealand, Page 19. It's fair to say that the economic environment in New Zealand broadly is very challenging. Revenue decline year-on-year was 2%. The New Zealand dollar to the Australian dollar had a very significant decline, and that is also impacting when we bring these revenues and profits back into the Australian numbers. Total growth, however, with new sites was 4.5% over that period. EBIT declined. It is a very competitive landscape. And I'm happy to say that there are very positive signs with a number of margin recovery activities now in place and starting to build momentum in F '27, but not reflected in F '26 results. Positive like-for-like sales growth in Q2 and Q3 were certainly impacted in Q4 as we saw an even more constrained economic environment. Actions are underway to strengthen the performance momentum, focused around better customer interactions. We've introduced a customer call and contact center that can better serve the branch customers. as well as activating customers in that market. We've opened a new Dunedin superstore. We're actually commencing our new DC, which is transitioning in Auckland, which will have positive impacts on the cost of doing business. And we stood up a brand-new DC in Christchurch to get stock closer to our customers. Hopefully, that gives you some insight as to what the actions are and what we're doing to continue positive momentum in F '27. On that note, I'll hand over to Kim Kerr, our CFO, to talk through the financial results. Thank you, Kim.

Thanks, Chris, and good morning, everyone. I will start on Slide 21. Slide 21 outlines the main external factors that affected operating costs and consumer demand during the year. The Middle East crisis created a number of pressures across the business, including higher fuel, freight and oil-related product costs against a broader backdrop of elevated interest rates and softer consumer confidence. First, higher fuel prices increased the cost of operating our vehicle fleet in the fourth quarter by approximately $2.2 million, most of which was absorbed by the group rather than being passed through to customers. Separately, freight providers imposed domestic fuel surcharges. The graph on the left shows the increase in this surcharge. We responded by implementing freight optimization initiatives, negotiating with providers to minimize the increases. The crisis also placed upward pressure on oil-related product costs. While crude oil prices have declined, the base oil benchmark underpinning lubricant import costs have continued to increase due to ongoing demand and supply constraints. This has resulted in higher product costs and required targeted pricing actions. The second graph was consumer confidence across Australia highlighted in -- the second factor, sorry, was consumer confidence across Australia highlighted in the middle graph. The softer consumer environment affected discretionary demand, particularly in retail, but also the level of car servicing activity. Management actions included price rollback initiatives in trade and in retail, targeted promotional activity and ensuring the business is ready to participate when demand rebounds. The third factor was the significant weakness in the New Zealand dollar against the Australian dollar, impacting the results of the New Zealand segment in Australian dollars, which Chris discussed earlier. We are taking actions to address the impact of the currency movement. These external pressures do not change the need for Babcor to execute better, but they do provide important context for the FY '26 performance and the actions being taken. Turning to the income statement on Slide 22. The statutory result for FY '26 was a loss of $431.6 million, including $442.4 million of post-tax significant items, which are largely due to the impairment of goodwill and intangible assets across each segment. This was flagged as a possibility in the 14th of May 2026 trading update. The impairment charges reflect impairment testing assumptions that place a greater weight on recent trading performance and current market conditions over the benefits expected from future turnaround initiatives or improvement plans. In the appendix on Slide 28, we have outlined the significant items and provided a commentary on each one. Revenue declined 1.8% to $1.924 billion, although, as Chris outlined earlier, positive signs were evident in the final 5 months of the year. Gross margin was $872.1 million, down 3.3% on FY '25. The gross margin percentage was 45.3%, down 72 basis points. This reflects the impact of pricing actions to improve competitiveness, mix effects and market pressure, although the gross margin percentage improved in the second half as the turnaround initiatives gained traction. Cost of doing business increased 7.6% to $719.6 million. The increase reflects continued investment in information technology and supply chain initiatives together with higher employee costs and other expenses. Underlying EBITDA was $152.5 million and underlying EBIT was $51.4 million. Higher depreciation reflected historical investments in the network and distribution centers as well as investments in technology projects. Finance costs reduced 4.4% to $35.6 million due to the lower debt levels following the equity raising as well as working capital initiatives in the second half, although pressure remains on property lease costs. Underlying NPAT was $10.8 million. Turning to cash flow on Slide 23. Operating cash flow was $166.9 million. Cash conversion improved materially to 109.4% from 86.5% in the prior year. A key driver was the second half working capital program, which delivered $68.5 million of cash flow from inventory, overdue debtor collection and other cash improvement initiatives. This was in line with the $60 million to $75 million guidance range provided in February. Second half cash conversion was particularly strong at 125.8%. Capital expenditure reduced to $29.2 million this year. This reflects lower expenditure following the completion of major network consolidation projects and a more disciplined approach to capital allocation. Free cash flow increased to $55.2 million. This reflects lower CapEx and improved working capital management. The net cash movement was positive $35 million compared with the cash outflow of $26.5 million last year. Closing net debt reduced to $135 million, supported by the free cash flow -- positive free cash flow and the equity raising during the year. Turning to the balance sheet on Slide 24. The key item to highlight in relation to the balance sheet is the decline in intangibles and right-of-use assets, which is due to the impairment outcomes. The second half working capital initiatives improved the quality of receivables with a $14.5 million reduction in overdue debtors and inventory reduced by $20.4 million since June '25, driven by targeted actions to optimize ranges, lower minimum order quantities and reduce excess stock. This program continues into FY '27. Turning to net debt and capital management on Slide 25. Net debt decreased by $229.8 million from June 2025. This was driven by the $200 million equity raising as well as the cash flow improvement initiatives delivered during the second half. Babcor complied with all debt covenants throughout the year. At 30 June 2026, the net leverage ratio was 1.72x EBITDA compared with a covenant of less than 3.5x. And the fixed charge cover ratio was 1.62x EBITDA compared with the covenant of greater than 1.4x. During the year, we repaid the maturing $100 million MetLife facility and reduced available debt facilities by a further $135 million. And this is to align better to the needs of the organization. Total facilities are now $585 million, and we have an average remaining tenor of around 3 years. Importantly, the balance sheet has been materially strengthened and provides the financial flexibility needed to continue executing the turnaround. I will now hand back to Chris for the summary and outlook. Over to you, Chris.

Thanks very much, Kim. And also just before turning to the trading outlook on Page 27. I just want to thank the Lachlan Edwards as the Chair and the Board and our shareholders for the honor that has been given to me in being a part of this turnaround with the new executive team in place. This business is good at the core. The focus on team and customer and value returned to our customers is setting us up to really take benefit in the future as we see a more stable trading environment come back into our economies. If I looked at the sales now in the first 6 weeks of F '27, we're slightly ahead of prior comparative periods. Trade and the parts very specifically in our trades business is building positive momentum and I talked about 2-plus percent growth. Networks continuing to grow quite strongly. We are absolutely focusing on some of the areas that we've outlined that are still being challenged, and we still see certainly significant upside around retail, New Zealand and also our trade businesses. I'm happy to say that the margin enhancement activities through the introduction of data analytics is starting to build momentum in most of our trading business units. We are also continuing to look at cost-out activities in the business, and we can certainly see that, that will build momentum as we continue to take cost out of our business in the coming months. Bapcor expects modest growth in F '27 at a revenue line, particularly because of the conflicts and the economic impacts that are being felt in Australia and New Zealand very specifically. The benefits of our improvements will continue to build momentum as we move towards the full year. The capital expenditure, depreciation and amortization are expected to be in line with F '26 levels, while capital utilization through effective planning and closer management will continue to build our capital benefit delivery on investments that we make. Underlying NPAT is expected to be materially weighted to that second half of the year. Enhanced pricing analytics, promotional performance, improvements on effective management of costs throughout the business will be significant contributors to our future recovery. And as mentioned before, we're reviewing some $300 million worth of nonstock purchases in the business, and there are some really positive signs of being able to reduce those costs. Strategically, the turnaround program is stabilizing the business, while very clearly, the comprehensive strategy that I outlined before that we are building starting in April, it is certainly coming to a point of maturity, and I can absolutely confirm that it will be addressing and simplifying our business as we move forward. Turning to Slide 28. There's no question it was a tough year, bottoming out a multiyear decline. We've got a credentialed automotive executive team now in place. That enhanced leadership capability, especially through the appointment that I mentioned throughout the presentation, gives me great confidence that we have now the right people in place to execute both the turnaround and the strategic plan that we have put in place. The skills that Kim Kerr has brought to the organization, the governing -- governance improvements around our financial controls are significant and should give us confidence in the future of the business. The equity raising has actually put us into a good place in line with our strong and improving controls around generating cash into our business. With clarity of the strategy, improving capital management, we are going to continue to deploy and monitor very carefully our delivery to our plan in the coming year. And the early 6-week period is certainly giving me confidence in the year to come. The 5 priorities are very clear: team, customer, trade partner and returning the business to both growth and improving profitability while actually optimizing and reducing the cost of doing business. The longer-term strategy will certainly be well developed, and it won't be that long before we'll be able to share that more fully with people. We're under no illusion that the work still ahead is significant. However, Bapcor enters F '27 with stronger foundations, momentum that is very clearly starting to gather pace. We've got a clear set of priorities. The reset has been established and F '27 is about disciplined execution and translating that progress into sustainable performance growth. Thank you very much for your time today. So handing back to the operator for the Q&A. Thank you.

[Operator Instructions] And our first question for today will come from Garth Francis with MST Marquee.

Could you maybe just elaborate on your plans for the store network across the various divisions? There have been a few store closures during FY '26. And we just want to get an idea of how comfortable you are with the current size and what might happen through '27 across the banners and looking forward?

So Garth, I mentioned the trade business will actually be expanding with additional sites coming online. There is no question that when you've got 900 sites, you need to continue to prune to ensure you've got a healthy network. But if you looked at networking, again, it will be a growth in the networks business. In the retail business, until we are very clear about the footprint is optimal to deliver performance, we will be resetting how we're using that space. And I'd equally say that there is no question in my mind that we have excess space in the network. So renewing, you may actually move to a smaller site in particular geographic areas, but we need to more fully complete that review of space utilization in the retail business. However, we have completed a network review on retail, which very clearly calls out quite a significant opportunity for growth in the future. We just need to be clear about what the optimal box to deliver improved performance is before we start moving forward. Hopefully, that answers your question.

It does. And perhaps just to follow on from that, you did mention earlier in the call when you're talking about the retail division that you were looking to improve space productivity in those stores. Can you talk to the measures that you are tracking there and whether those will be disclosed so we can track that progress outside of a like-for-like improvement, for example?

So right at the moment, we're working through the detail of the average performance at a rev and also a profit per square meter -- and so not at this point, am I in a position to give that to you. That's what we're working through at the moment. And then we will equally be looking at what's the optimal performance out of what size of business, notwithstanding I talked to the rebuilding of very clearly brands, ranges into that space. So we just need to be a little bit careful not to jump too quickly before we actually introduce those programs that are going to better utilize the space that's available to us and what ranges that are actually in those businesses relevant to the geographic areas. So a bit of work to be done before I can share more detail around that.

[Operator Instructions] Our next question will come from Sam Teeger with Citi.

I just wanted your thoughts on how much of the modest sales improvement you're seeing has been driven by sustainable market share gains versus promotions, pricing resets or easier comps?

Yes. Good question, Sam. Certainly, the belief and looking at the lower level detail around customers where those growth occurring from, whether it be trade or retail businesses would say that it's sustainable share growth that's being achieved. And equally, it would give me confidence that there's more upside in that while saying to the forecast, the reason we still believe it will be modest is quite clearly, there's a lot of headwinds in the market, consumer confidence, available income. But I think it is very clear that it is a trend and sustainable. And the fact that in the last 5 years, this is the first 2 quarters that we've actually seen momentum continue rather than just one up and then back down again. So it would certainly appear that the activities we're taking are giving momentum that is now multi period upside.

That's good. And can you talk to the major drivers of the profit being materially weighted to the second half? I mean is it margin recovery, phasing of cost savings, sales acceleration, easier comps, like what's the main reason?

I think when you talk about the implementation of data analytics into pricing, for example, Sam, you can get the insight relatively quickly, actually getting then the embedment of a methodology to apply that across multiple customer types, channels, the maturing of that capability in your business takes a little longer. Where I can give a very clear why we're so confident that, that will build momentum in one of the first divisions where we actually introduced the capability around pricing analytics, we're now seeing very significant margin improvement, and they are maturing that skill very quickly. So now we're rolling that capability out into the other business units. that's why we're very confident about that momentum building. Equally, I made mention about the tremendous support from our trade partners in helping us to get the range absolutely relevant to car park with a [ C ], i.e., the cars that are on the road now. For a number of years, we were not keeping our range as relevant as it could be to the car park. Generally, if you've got the right range and certainly more contemporary, you can actually achieve better margins out of it. That work cleansing has started but building momentum. So we'll have fresher and more relevant merchandise on the ground. So again, achieving higher margins from those sorts of activities. Data analytics around pricing elasticity, so the promotions we're running very clearly looking at what's the optimal value equation for customer without giving away too much margin or margin that's actually not beneficial. So we're looking at that capability out of data analytics as well. So there's a number of fronts that as those sort of capabilities are maturing that will continue to build and deliver momentum. And the other element is we've clearly talked about refreshing ranges with those trade partners, the renewal of the -- and the retirement of older stock that is being returned to trade partners. Again, that's helping -- there's a number of the areas that are helping. And the final point that I would say, which was talked to during the presentation, we were seeing very specifically in trade business, but remember that trade networks, the, call it, discretionary discounting running around about 16% is now down to 8%. And again, the -- although in the second half, that was very materially supporting the winding back of prices to be competitive in market, we're certainly starting to see that, that's a significant opportunity to be materialized in a gross profit coming and building momentum as we progress through the year. Hope that answers your question.

Yes, that's good. There's a lot there. Well done on the working capital improvements. How much further opportunity remains into FY '27?

There's certainly a number of different things that we're doing. We continue to focus on the rationalization of ranging and not reordering, call it, or substandard commercial performance ranges. And if you look at the work that we continue to optimize ranging right through the business units, we will see significant release through range rationalization. But as I also shared, while we're improving in-stock and relevance to car park, so we're actually proving that can be done with lower inventory. So confident all those initiatives are going to continue to improve. We've actually introduced enterprise-wide open to buy as of 6 weeks ago. That was a new capability that's been embedded. And we're actually rolling out, which is mentioned through the presentation, planning capability, forecast demand planning capability in all the business units that hasn't been there before. We're also working with partners to help us continue to improve our overdue accounts and also reconciliation of accounts, looking at machine learning, AI solutions that can help improve that space of recovery and cleanliness of our accounts. So that, again, will be positive impact on cash and capital health in the business. So hopefully, there are a few things that give you a bit of a sense of directionally, we're confident. And I'd say pretty consistent with what our previous announcements have been that we continue to build momentum in releasing cash capital and what actions we're taking around inventory and better management.

But on that, so you did $68.5 million in the second half. Do you think you could do another $68.5 million over the full year '27? Or is that too much of a stretch?

Look, I think that it's fair to say that it will be material what we can continue to do and our budgets and forecasts reflect a material improvement in that space. And I can say the first whole 6 weeks, we're consistent with what we would expect it to continue to deliver.

Your next question will come from Adam Dellaverde with Blue Ocean Equities.