Gale Pacific Limited (GAP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Gale Pacific Limited First Half '24 Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. John Paul Marcantonio, CEO of Gale Pacific. Please go ahead.

Thank you. Good morning or good evening, everyone, depending on where you're at in the world. I'm John Paul Marcantonio, CEO and MD at Gale Pacific. With me on today's call is Sheryl Smith, the company's CFO. And before we start, I'd like to first apologize for the frog in my throat. The seasons were transitioning here in Charlotte, North Carolina and the pollen tends to have a bit of this effect on me. But from a business standpoint, that's actually a pretty pleasing condition to have for me in the middle of February. So thank you all for joining the call. Today, we'll take you through the first half results, drive down into the regional results overview of the company and then provide an update on the actions and the accomplishments against the company's strategy in the first half and what is planned for the second half. And then we'll finish with the full year '24 outlook as well as taking some questions and answers, which we have some that have come in already. So we're looking forward to that as well. Gale Pacific, global business, 550-plus employees, the world over, split relatively evenly between commercial and consumer products. We go to market under the Coolaroo brand in our consumer product categories, which you can see on the screen here. And then also, to the market in the Gale Pacific Commercial fabrics brand in the professional and the commercial spaces. The company has evolved over many years with a focus on developing products for businesses and for end consumers across a number of end-use industries with a focus on product design, comfort, protection and sustainability, and I'll outline a few examples of how we're delivering on that, even in the first half of this year. Our business is a global business with selling regions -- 3 selling regions, primarily the United States and the Americas; primarily Australia, in Australia and New Zealand; and then we bundled the rest of the world in what we call developing markets for the company. And we'll speak to each of those individual selling regions and the drivers for what's occurring in our customers and in those markets. And the company, 72 to 73 years young, has achieved many milestones over its tenure as an organization. And many of those milestones that have been achieved in the past have enabled the outcomes, not only for the first half, but for what's coming up with the company's future. So we're proud of what the company has achieved over many years. Gale Pacific is differentiated versus many of the competitors that we participate in the market with and against. We have category-leading markets and category-leading brands and coupled with high quality and innovative products. And our technical fabrics expertise really makes us a company and a partner of choice to develop and build business with some of the world's largest retailers and end-commercial consumers. We're a vertically integrated manufacturing house with prime manufacturing sites in Australia and in China. We have global distribution and we operate a global supply chain. And we have a deep and grand long-term customer partnerships with some of the world's largest customers that participate in this market segment and in the spaces that we participate in. We're diversified across consumer and commercial end markets. We have a sustainable product portfolio with many of the materials, if not -- close to all of them being easily recyclable with current recycling technologies that exist in the world today. We've been on trend for outdoor environments for many, many years. That's increasing definitely over the last few years as consumers look to extend their living space outside their home. And there's a growing awareness for the importance of sun safety around the world similar to that, which has been in place in Australia for many decades. And that plays really well into our core strengths as a company and as an organization. To take you through the financial results for the first half, I'll just hand it over to Sheryl Smith, and she'll talk a bit about the first half drivers' results, and then we'll come back -- I'll come back at the end of this section and talk a bit about what that means for the regions. But before we do that, I wanted to make sure that we level set the results with an understanding of the macroeconomic and the broad market environment that we participated in, in the first half. As you've noted across the last week or 2 with our releases, we've had unfavorable and relatively inconsistent weather patterns across Australia, and that dampened demand for both commercial categories like agriculture or grain fabrics as well as our consumer categories that are sold through retailers across Australia. The noted improvement in global supply chains led to inventory reductions at customers as shipping lead times condensed and lead times for products and orders -- order time lines for products has dramatically dropped. At the height of the pandemic, we were seeing time-on-shelf from order of 150 days. In the first half of this year, we're coming -- averaging about 75 days from order to on-shelf of customers. So that dramatic drop in the lead time to produce and ship product around the world led to working capital pullouts across many of our customers around the world. Shipments for second half summer inventory for promotions and new business awards really shift from the first half to the second half of the financial year, those secured and incremental. The improved supply chain environment allow customers to place those orders later than they normally would and us to ship them and invoice them later than we normally would. So that's really a half-on-half movement, which is influencing the first half results of this year. We've seen continued rotation of consumer spending from goods to services throughout the first half of the year. And that, coupled with higher interest rates, persistent inflation and just continued broad market housing challenges really, really put pressure on sell-through at customers in many of our markets, but most specifically in the United States and Australia in the first half. So with that, I'll hand over to Sheryl Smith, who will take you through detailed results for the first half of the year. Sheryl, over to you.

Great. Thank you, John Paul. Good morning, good evening, everybody. So let's hit some of the highlights for the results for the first half of FY '24. The revenue for the first half came in at $77 million. That was down 17% from the $92.6 million in the prior comparative period. And John Paul will talk a little bit about the regional impacts on the overall revenue in just a minute. The profit before tax came in at a loss of $6.1 million. That was lower compared to the $0.6 million profit from the prior period. And additionally, we had EBITDA that came in at $2.5 million, that was up $7.9 million compared to the prior period. The results do reflect inefficiencies in our manufacturing plant, in particular, in China from the second half of FY '23. As some of you may be aware, we -- when we saw some inventory destocking at our retailers in the second half of FY '23, we made the difficult decision to pull the brakes on our production plant in China in order to manage inventory effectively. So what happened, we did that in the second half of last fiscal year. That flowed through into the beginning of the first half of this fiscal year and those inefficiencies, through higher product costs from the fixed overhead absorption and efficiencies, are reflected in these numbers that you see on the screen. The directors have decided not to declare an interim dividend. In the prior period, we had a $0.01 dividend that was 100% franked. Looking ahead or looking at the cash. So the net cash from operating activities was $19.6 million in the first half. This is an improvement over the prior period, which was a negative $11.7 million, so quite a significant shift there. As I mentioned a moment ago, the inventory management -- the global inventory management that we that we put in place in the second half of FY '23 helped to drive the improvement from that cash from operating activities. Additionally, we also had cost management that we put in place, and we had some strong cash collections, in particular, in the Americas region as well. Net debt for the first half was $2.2 million. This has improved over the prior year, which had a net debt number of $24.7 million. And again, that's being driven by working capital improvements and does include the cost of the Microsoft ERP system for the first half. That was about $1.4 million. Next, let's talk a little bit about our global debt refinancing. Some of you might be familiar with this topic. I'm very happy to announce that we have secured long-term debt financing with a new partner, HSBC Bank. This will be a global debt financing structure with asset-based lending facilities in the U.S. and Australia as well as a revolving debt facility in China. So globally, this will allow us to increase our debt capacity from about AUD 60 million to AUD 85 million. It's a more streamlined structure, in particular with the asset-based lending structure, which is set up with a revolver and set up with, in some cases, daily sweep. So it helps us to better manage our financing costs. It means we're borrowing less money and driving a more efficient finance structure. It'll allow for scalability, so as the business grows, as we execute on our growth acceleration plan, the debt structure will be there and will grow with our business. So currently, in the U.S., Australia and China facilities will be fully closed following the settlement of the outstanding ANZ-based debt which we're working through now, and that should be finalized probably in the next week or 2.

Thank you, Sheryl. Just a note to the room, considering the backdrop in lending, specifically commercial lending over the last 12 to 18 months, with the run-up in interest rates and the need for improvement in holdings at banks around the world as well as some of the liquidity challenges we've seen at major banks around the world, I think it's a really strong statement for a new partner, HSBC Bank, who will help us scale the company over the coming years with investments and the capacity to invest against our growth acceleration plan, which is really pleasing. So a wonderful piece of work in the first half despite the challenging demand environment. And getting specifically into the regional results for the company in the first half. The revenue in the Americas was down 21% on the prior corresponding period, primarily due to revenue reductions attributed to inventory destocking, continued destocking in the first half at retailers. As I mentioned earlier, we moved and the customers moved promotional load-ins and new product load-ins that were happening in November and December back in the January through March time frame to prepare for the coming summer selling season due to the improvement in supply chain capacity and product lead times. And so we're confident we'll increase the level -- the total level of revenue in the second half as compared to the first half, but it's just -- it's a bit of phasing up to the second half on the first. We've been successful in securing new product placements in the second half for Coolaroo with HeatShield, shade products and pet products, some of which will be mentioned at the AGM. We have further announcements we'll talk about later on the presentation, a rollout for those categories across United States customers. The first half of the year, we did see record revenue for our commercial architectural shade fabric range in the first half of the year for the Americas business. And we have a reasonable line of sight to the second half being a record as well for the company. So full year FY '24 being a record for the company in commercial shade fabric. So it's very pleasing on the back of the innovation in the pipeline over the last several years as well as our ability to service the growing demand and the growing category in the U.S. market is helping us win. We improved demand planning and forecasting over the last 12 months in earnest. That's helped us really reduce the working capital levels required to service this business effectively and this have flow on effect helping us lower debt. And those reduced lead times I mentioned earlier have allowed us to improve those financial metrics, without sacrificing any service to customers. The team has done a good job of managing that in a complex downward demand environment. And I'm pleased to report that we completed the transition of our custom roller shade facility from our Orlando-managed facility to a partner in Spartanburg, South Carolina, which is about 1 hour and 20 minutes south of our Charlotte office. The increased capacity and efficiency will help us grow that business over the coming years as we relaunch the portfolio in the second half of the year to include some breakthrough new HeatShield fabrics in that space as well. Turning to Australia and New Zealand. Revenue was down 15%, versus PCP. As I mentioned earlier, poor weather and really inconsistent weather patterns dampened demand for commercial grain handling and water containment fabrics in the half and it also had downward pressure on consumer home shade categories, which we'd expected to perform slightly better. New consumer products launched in the half with Coolaroo with HeatShield shades, shade products going into stores and a new umbrella range landing at Bunnings over the last half. We also were able to secure additional placements at a major new retailer for gazebo and pergola for the next -- throughout the first half of the year. As you turn to our Commercial Products business, in the first half, the company was successful in being awarded the default position for its Ecobanner advertising fabric at the country's large -- at Australia's largest out-of-home advertising agency in the first half. So we're excited to partner with that company in driving a step change in the market with actual PVC coming off of billboards and our fully closed-loop recyclable solution, polypropylene-based banner material substituting rapidly over the second half and into the first half of the following year, so really pleased with the work that, that partnership has generated so far and really looking forward to some increased growth over the coming years. The sustainability angle also extends to some legacy categories like our market-leading line of grain fabrics marketed under the Landmark brand. For several years, we've been working to develop a fully recyclable grain cover for the Australian market as well. And I'm proud to report that our team is successful in concluding several trials for Landmark grain fabrics to contain upwards of 35% to 50% fully recycled resin and reuse in those grain fabrics that in the field. So we're partnering with Graincorp to do so and look forward to extending that partnership throughout this coming grain season. And hopefully, we're able to take that technology across the entirety of the Australian grain market over the coming years to really spearhead and leave another dramatic change down a more sustainable, environmentally friendly path for grain fabrics over the coming years in Australia as well, and hopefully, other markets around the world, based on the success that we'll deliver in Australia. We also saw improved demand for coated nonwoven products. So we could [ pave ] for a partner-customer that used it for the commercial food distribution supply chain. We have record demand plans for the second half and for the full year in that category, and we're excited to be able to fulfill that demand with that partner. And at the end of the previous fiscal year, we announced efficiency initiatives aimed at ensuring the appropriate cost base for Australia business and also then redeploying some savings back into forward-looking growth generating roles. That was completed at the end of Q4 last year. We saw benefits to read through the P&L in the first half of this financial year. And then we also saw -- we anticipate and plan for improved results in terms of efficiency and spending specific to that project in the second half of the calendar year as well -- the financial year, excuse me. In the developing markets, revenue was down 3%, and it was really on the back of reduced demand for consumer products in Japan, and for similar macro reasons as we discussed for the other 2 markets, a shift of demand timing, really, in Italy and Spain. We think that's going to be more than made up in the second half of this year, but again, moving from the first half to the second half, and then lower commercial fabric demand at one of our largest partners globally for commercial fabric, that happens to be in Israel. So we have been successful in working with that partner to secure additional orders for Q3 and with further recovery plan for Q4 as well. We saw increased commercial shade project investment, particularly in Q4 -- I'm sorry, in Q4 of last year. And as we exited Q2 of this year, that continued. And so on the back of that, we anticipate improved results for demand for commercial fabrics in the second half of the calendar year -- sorry, the financial year as well as driving additional specification for our products due to increased project activity and on the back of share gains generated from our innovative line of new fabrics in the commercial space in the second half as well as putting some more focused business expansion on the ground in the Saudi Arabia market starting in the second half of the year, which we anticipate will pay dividends both in the second half as well as the years to come. And we're proud of the result in the reduction in long-dated debtors and total debtors over the last several years, but most particularly, as compared year-on-year in the first half. Reductions in planned -- further reductions are planned in the second half due to improved collections, the benefits of the tighter credit policy that we put in place and, really, a focused effort to develop and drive partner customers who can behave according to what we think is the best business practice in terms of credit ongoing, so really pleased with the work that the team has been able to drive there over the last 12-plus months. Turning to company strategy next and a bit of an outlay of what's coming up over the next half and then into the following years. Our company's strategy remains the same simplified approach to build Gale Pacific into a faster-growing world-class global fabrics technology business. We do that through product innovation, growing our categories, improving our operations and pioneering and entering into new markets, both from an end-use market standpoint in an existing country like Australia or the United States, as well as entering new markets, new geographical markets over time as well. Our growth acceleration plan holds for this year. Again, the vision, stepped out to make sure that we incorporate and we act in accordance with our values. We're very specific about the categories and markets in which we participate in. And then we have an on-purpose plan as we build and develop our team over time. And that strategy really plays itself out in 4 -- I'm sorry, 5 areas for growth. And we were looking to grow our categories, grow our markets, grow our people, grow our capabilities and grow our supply chain. And while we do that, we want to deliver with everyday great execution in the coming periods. And there are some great examples of that in the first half despite a lower revenue and a downturn in profit in the first half. HeatShield with -- Coolaroo fabrics with HeatShield launched in the market in earnest. That's leading the category growth in customer expansion, which I'll outline in a moment with some specifics. Our digital and in-store advertising and awareness campaigns are driving record types of sell-through on new products that enter the stores and for our brands, generating more impressions to make people aware of these new benefits that exist in the stores with these new products. And as I mentioned earlier, our market-leading line of Ecobanner away-from-home banner fabric that's fully recyclable and capable of a 100% closed-loop recyclable solution has gained preference and default status at Australia's largest away-from-home advertiser, which we're extremely proud of. Turning to markets and how we grow them. We're launching, as we speak, literally this week, we're shipping new products to Lowe's across a number of new ranges, but most specifically, new ranges of on-shelf roller shades, including HeatShield fabric that will roll out across 1,700 plus stores at Lowe's over the coming 1 to 2 months and be in place fully in time for the -- hopefully, the hot start to the summer selling season in the U.S. We have all-new packaging, all-new merchandising and we're really excited about seeing those products on shelf and introducing them to American consumers in full force. As I mentioned earlier, we were able to secure a breakthrough Bunnings range -- a breakthrough range of umbrellas at Bunnings as well as some additional HeatShield products across all 4 categories. We're extremely excited about seeing the sell-through of that over this and coming periods as well. I'm pleased to report that we'll expand Coolaroo outdoor roller shades in an additional nearly 200 stores across Home Depot in the coming months. That's on the back of an improved product mix as well as our innovation with HeatShield. That will start shipping in the March to May time frame as well. And as I mentioned at the AGM, we're really starting to see core shade and pet expansion in LatAm with some increased penetration in Central America and in Mexico. And as I mentioned earlier, we're putting market development resources on the ground in Saudi Arabia moving forward in the Middle East. Turning to our people. We have new training and development programs in place and in action, leadership behaviors and performance management programs have been launched and are in action and really helping us identify and develop talent within the organization as we've brought new and exciting talent into the organization over time. I'm pleased to report that our global engagement scores were 84% and for the company, which is well above benchmarks for global manufacturing firms as well as global consumer products companies, both in Australia and the United States specifically. We've taken the time to understand the [ verbatims ] from our team. We've built an instituted reward, recognition and communication programs. And there's engagement teams launched across Australia, the U.S. and China as well to make sure that we further the work as our team develops and our business changes. And as I mentioned over the last several months, our executive functional and regional leadership teams are now in place. Every organization's complete with new high-caliber people really across the organization and, really, to be specific and focused on delivering our aspirations as contained in the company's growth plans. Turning next to capabilities. We further improved demand planning throughout the half, which led to the lower debt levels that we mentioned earlier. The operating processes and defined accountability improvements led for more efficient, more specific outcomes as it relates to those areas. The ERP, the transition to Microsoft Dynamics 365, pleasingly, is on time, on budget and in scope, and we are on track with a go-live plan for late quarter 4 of this financial year. And it's no small undertaking for the organization, specifically one of our size. We've got good partners in place in the U.S. and in Australia. And as I mentioned earlier, at this stage, we are very much on track and on time and in scope. Lastly, I think it's important to note how, not only the products that we've launched, based on product innovation and patented benefits or -- are reading through the P&L in the market today, but how we plan on extending that innovation and the patent portfolio across more of our business. The HeatShield technology has been pretty well received across the globe, with product landing at Amazon, Sam's Club, Home Depot, Lowe's, Bunnings, all in a less than 12-month period. In addition, as we mentioned last time, Coolaroo pet beds with HeatShield fabric will show up on floor at Walmart and several thousand stores in the next few months in time for the summer selling season. So the innovation that we're launching is helping us gain customers, gain new placements. And now we're extending that into other categories. You'll see HeatShield being rolled out in across our custom roller shade business, as I mentioned earlier. I mentioned further pet bed expansion will exist and then rolling into our commercial shade fabric business, which we think is a real differentiator and will provide really meaningful benefits for municipalities, for commercial end users who are operating underneath our shade fabric ongoing, so really exciting developments there as well. In terms of supply chain, we've talked about it several times, but it bears repeating the lower global inventory levels and working capital decreases are noticeable. I think that's systemic now, how we're managing demand and how we're managing the supply chain, barring any other exogenous 100-year type of phenomenon that may or may not hit us over the coming periods. I would tell you that in a somewhat normal operating environment, our team has proven that the demand planning function, the manufacturing and sourcing functions are very well aligned. And that increasingly so, that demand plan is tied closely to our financial forecast through our sales team, so a really nice improvement there for many years. As I mentioned earlier, restructuring programs in Australia and the custom roller shade manufacturing transition is now complete. The savings are reading through this financial year. And new efficiency projects have been launched in the prior period. Those are reading through the P&L. We also have new projects that have launched in the first half of this year as well as further savings initiatives planned to launch in the second half of the coming -- the second half of this financial year. So our outlook then is based on, not only will we experienced exiting the first half, but what we see coming towards us in the start of the second half. And I'm pleased to announce that we believe that we expect improved results in the second half of the year and leading to increases in both profit and revenue as compared to FY '23 on the back of, actually, quite a number of factors. I mentioned it several times that bears repeating. The launch of patented new Coolaroo with HeatShield products are shipping across the United States right now as we speak, and more will ship in the coming months. We've increased distribution on our core product ranges across new retail locations in the U.S. I mentioned the transition in Lowe's earlier and the additional business we picked up there. I did not mention earlier was that in the first half of the year, most retailers only transition from an existing program to a new program. They'll draw down inventory during that time frame to limit transition costs. That's also one of the demand factors that was somewhat material in the first half of the financial year. The good news is that in the second half of the year, the benefits of that should start reading through on shelf and through the profit and loss statement as we gain those spots and they start to sell through. We did secure incremental promotional placements on floor and online across retailers in the U.S. There is a need now as the sell-through starts to pick up for there to be an increase in the level of on-hand inventory, the counterbalance the inventory takeouts that we saw in calendar '23. So in preparation for the -- with the coming summer selling season, we're seeing increased orders to supply that demand as well. And as I mentioned earlier, we're seeing sell-through improvement across a number of categories. It's not everywhere yet, but we're seeing it improve month-on-month as we're watching sell-through results retrospectively 1 and 2 weeks in the rearview. And so that is increasing as well. We've seen favorable trading conditions, as I mentioned earlier, across our commercial fabrics ranges, most particularly with increased demand for those fabrics across, really, 3 of our -- all 3 of our selling regions, the U.S., Australia and the Middle East. We're hopeful that the water level --in the subsoil water levels across Australia will lead to an improved grain harvest this year, which will help us drive the agricultural business, but we're not counting on that as of yet. But we are seeing improved demand for the company's existing and new ranges of commercial shade fabric as well as nonwoven paper products and some of the more sustainable items I mentioned earlier. We're pleased to say that we're seeing relative input cost stability across input cost categories now as that relates to shipping raw material categories. And so we're planning for that to be somewhat stable in the second half of this year. We have further operational efficiency initiatives across our manufacturing facilities, our distribution facilities as well as with how we interact with customers with reducing overall cost-to-serve footprint some trapped costs of inefficiency. That work's never done. Our team is never satisfied with that level of an efficiency until it gets to -- until we get it as close to 0 as possible. So that will continue in the second half of this year. We will see increase -- we have experienced it since late October, increased manufacturing volumes to supply the demand in the second half of the year. And then -- well, as I mentioned earlier, a favorable product mix will read through this year with a somewhat consistent level of pricing, which will lead to margin expansion in the second half of the year. So to reiterate, we expect the full year to be an increase versus the prior year in terms of both revenue and profit based on these drivers. And with that, I'll end my portion of the conversation and hand it back over to the operator to see if we have received any questions that have come in over the phone while we've been presenting the information.

[Operator Instructions] There are no phone questions at this time.

Great. Thank you. There were actually a few write-in questions I want to make sure we address on the call today. And the first one is from [ Tim Hargraves ], and thanks for the question, Tim. He says, "Hi. There's been a lot of talk about what if Trump is elected? The tariffs being ramped up to 60%. What's your plan should this occur?" We -- our view is that we don't forecast for presidential elections, but it's our responsibility to make sure that we understand the business environment around some of those challenges. And look, we took share and grew our business and our profit during the last period that this occurred in the U.S. I think that it's highly unlikely -- my professional opinion, that's highly unlikely that there will be a transition to 60% tariff levels across all goods manufactured in China coming into the U.S. But look, our responsibility is to make sure that we put a strategic plan in place to offset any potential difficulty in supply and demand. So we're already working on new ways to supply our business that we would call nearshore here in the U.S., getting closer to the point of consumption in the U.S. market. We already have a manufacturing in place in Australia, so that's helpful. And so I think that's going to be a continued piece of work for us over the coming calendar year. So thank you for your question, Tim. Second question was from [ Tom Linn ]. And just, thank you, Tom, for the question. He says, "What is your market share picture for Gale products in various markets?" I wish I had a syndicated report to tell you that, Tom. It's -- our categories are nonreported. And what I mean by that is, if you were in the FMCG categories across a major market, like say, beverages or say, confectionery, almost every major grocery and convenience retailer will report on their shelf share and the brand share. We get none of that reporting anywhere around the world, including in our major retailers like Bunnings and then Home Depot, Lowe's, Amazon, those customers. What I'll tell you is our share of shelf and what we believe we are in some of those categories, we believe we're somewhere between 70% and 80% share for umbrellas across Australia. We think we have pretty large share positions in grain fabrics across Australia. Our functional coating business across Australia, we think we have a large share position there as well. And as it relates to share of shelf and share of category in places like the United States, very difficult to really calculate all that. What I would tell you, though, is if you go in store at Home Depot and Lowe's and outdoor roller shades, you'd be hard-pressed to find a product that we don't manufacture or source for those customers. So we have a dominant share of shelf there. Our commercial fabrics business around the world has been increasing share over many years. Our -- the revenue for our U.S. commercial fabric, shade fabric business, will triple in the last 5 to 6 years in the United States. And the U.S. will become our largest commercial shade market in the world this year. So we're seeing pretty large growth in terms of categories where we're participating meaningfully in -- across large mixes of product that meet most needs where it makes it difficult for competitors to replicate and less efficient for supplier or distributors or end users to duplicate. So that's -- that would be the best way to describe what our share position is. And I apologize, I wish I had the data to tell you, Tom. I would like to have it too. We got another call or another question here, and it relates to borrowing capacity. This is an unnamed, anonymous question write-in. "With the current borrowing capacity at $85 million in debt so low, how should we interpret this? And what are your capital plans?" And look, that I think that though we were challenged with the demand environment that we face, I think the team took the painful choices that were the right decisions to make to bring our debt and our working capital in line to match the demand environment. And you'll note over the last several years, I've been messaging something very consistently, and that is we have to make sure that we match capacity to serve demand in the market. And I think this is a really good example of us being able to do that effectively over the last year. Look, the other piece of it is as the markets, hopefully, turn to more positive conditions for growing, we want to make sure that we have the capacity to be able to invest in front of those opportunities. As you look at our facility structure moving forward, it's asset-based and 2 key components of the asset-based lending model are accounts receivable and inventory, right? So we need to make investments in front of the scale-up of customers and new products with innovation. And that borrowing capacity helps us make those investments with things that we know have bones and will help us drive profitable growth. The second piece of that is capabilities. And there's a few pieces of innovation that we have in the innovation pipeline right now that will need capital investment to fully realize the benefit of over long periods of time. And I think that this new structure enables us to invest, to drive growth, while also becoming very efficient with our use of cash and our use of debt and keeping our debt balances low and using our cash delivery to do that. And Sheryl, I don't know if there's anything else that you would want to hit on that I didn't touch.

Yes. I think the one thing I would just add, when you think about our new structure as well, is there is a global treasury management platform as a piece of this. And so there will be efficiencies driven from that as well. And I'll give you a good example. So in the U.S. the asset-based lending facility, it's set up through a revolver that sweeps every day. So as customers make payments, for example, those payments come into a received account and it gets swept at night against the facility. So that's how, when we talk about driving a more efficient financing structure and lower financing costs, that's a big piece of what allows us to do that, the ability to sweep every night. And if we need money the next day, then it automatically sweeps against the debt and draws down from the debt, but it'll drive a more efficient facility structure overall for the company.

Thank you, Sheryl. Another question is can you talk about specifically about the new products you're launching or have launched to how these are being introduced into new customer stores and how they're placed in store and some of the early experiences? I think I spoke broadly about the individual product mix going into the stores over in the U.S. and Australia. But I'll give you a great example of the early experiences in terms of business performance. So this past week, through the doors of Lowe's, we sold about 5,800 shade sales in 1 week through one customer with HeatShield. And that's been steadily increasing week on week. Last year, when we first launched a promotional, 1 shade sale across Lowe's and about 1,200 to 1,500 stores, we went from about 1,000 shade sales to -- in 1 week, going up to just about 12,000 shade sales in a week. So we talked a little bit about the scale of the U.S. market. Those are some salient examples of the increase that we can see through the floor and also through online purchasing. And so I've messaged this pretty consistently, gaining new store penetration in new stores with product on the floor in the U.S., it's just a vehicle to us accessing more homes, more households across this market, of which there's 130-plus million of. So we think based on our current sell-through rates, we're only about 8.5% to 9% penetrated across the U.S. market. And so when we bring innovation in a category that people are -- the awareness is growing in shade sales in the U.S., as an example. It would be a pretty standard product form in Australia. But in the U.S., it's growing in terms of awareness, the benefits of which people are starting to understand. And when we add benefits like HeatShield, it will keep you much cooler below, while still keeping you and your family and your pets safe below it, it makes an interesting mix of benefits, and we're starting to see sell-through increase as a result of it. One other anecdote I would tell you is that there's starting to become competitive awareness about who has what products for HeatShield in the U.S. market, so we're actually getting some inbound calls now where people want to add more product to their mix, both online and in store. So that's pretty pleasing as well. So I think more to come there, but those are some of the early examples. I think we have one other question here. Please just submit to the right place here. I did see another question here from Tim. Tim, I want to make sure that I satisfied that as well. So despite the loss of $6-plus million in the first half, you've reaffirmed guidance for the full year. What's the driver of the profit growth in the second half? These items on the screen are the drivers of those. And at the risk of being overly detailed here, we recognize that there's a significant increase in business performance forecasted for the second half as opposed to the first half. And so we thought it was prudent to really take the time to outline the drivers of each one of those. A few of these, I think, are still -- they're still to play out in the second half, and many of them are unsecured. So we're -- it gives us reasonable confidence in the second half of the year given what we see at this stage. I think the final question relates to debt, and I'll just -- I'll read this one. This one's from [ Jeffrey Poon ]. It says, "Net debt seems to be lower than average that I can recall. Do you anticipate this continuing going forward or net debt pick-back-up?" And let me ask you to start with that one, Sheryl, if you don't mind.

Yes, sure. Thank you,. Yes. So I think the -- when you think about where we were last December and where net debt was, right, we were in a very different situation. We're on the backside of the pandemic. We have longer lead times. Our inventory was much higher than we just ended the first half of fiscal year '24. So when it comes to the supply chain and how we're managing inventory, the team is doing a really excellent job with managing that efficiently. I see that continuing. I don't see a significant change there. I think there is a piece of our net debt to keep in mind as it goes into the second half of the fiscal year, so the second half, with it being the Americas' selling season, there will be impacts from other areas of working capital. So in particular, accounts receivable, right? So as we sell more in the U.S. market, you do have some of those payment terms that spill over from one fiscal year to the other fiscal year. So as the U.S. grows, we will see an impact in our net debt and in our working capital just related to that. But I think from the inventory side, I'm expecting the efficiencies that we've seen in the supply chain to remain. I don't know, John Paul, if you'd add anything to that.

Yes. No, I think it's really well explained, Sheryl. I think the only other piece I would add is the notion that as -- if you go back retrospectively and look at the growth path in the Americas, it's not quite as linear as one hopes, right? Nobody sees a clear plus/minus CAGR that follows a really tight trend. The reason why that is, is because we're developing a brand, a business, a category, a new team, all those elements in this market over a multiyear period. And so when that occurs, you sometimes have to take inventory bets and bring in inventory and innovation bets and bring in innovation that play out over maybe a 12- or an 18-month period instead of -- in the discrete 1 half, 6-month period. So I would ask, as you're looking at our business, think about it over, really, like a 12-month period and also consider the fact that though we report in July to June, as our company grows probably disproportionately so in the U.S., you'll start to see differences in half-on-half net debt, which we'll do our best to try to pinpoint-explain how that works. But it's not always indicative of exactly. The net debt number is not necessarily was indicative of business performance in that area given some of those overlaps. When you have Q4 revenue in April, May and June in the U.S. that we have on an average of somewhere between 30 and, call it, 75 or so days in collection time frame, you're just going to overhang into the second half, and that -- some of that occurs in the first half as well. So normalized, you should see that -- you should start to hopefully see most of that normalizing, but that's the one piece. I think it should be noted as you're analyzing it. Got another question that's come in from [ Bradyn McCormack ] for you, Sheryl. [ Bradyn ] says, what interest rate is the new facility versus the last facility?

The -- so the -- I mean, the interest rate will depend on which facility. So the U.S., as an example, is based on, so far, BBSY in Australia. The spreads would be comparable from that perspective. But again, the efficiency structure that I explained earlier with the overnight sweep against the facility, will drive greater efficiencies in our borrowing and our financing costs.

Thank you, Sheryl. Let's take one more local. Let's see if there's anything we've missed. It's one final one here, unless I've missed it, and I hope I did not. The question was regarding the banking relationship with HSBC. It says, "The banking relationship that was established with HSBC is with a well-known global bank. Can you talk about the process and why you decided to partner with this firm versus others?" And Sheryl, maybe we'd start with that and then I can finish it up.

Sure. Yes. So the -- so we decided last year to undertake an RFQ process. And in that process, we looked at 4 banks in Australia. We looked at a regional bank in the U.S. as well as 3 global banks. So as part of that process, we were really looking to drive a global solution, and we wanted a partner that can grow with us, and that understands our business in all the different regions, and that can help us have a structure that's scalable and efficient. And throughout the process, what HSBC brought to the table was they really listened to us. They solved for the different regions, and they also allowed us to leverage our China assets, which was something that a lot of the other banks didn't necessarily want to do. So they've been a great partner throughout this process as far as understanding our business, understanding our growth acceleration plan and what lies ahead for the company and creating a solution, not just in the debt facility, but also in the treasury management and our hedging portfolio as well to really build that out and drive that perfect efficient solution that we were looking for. I don't know, John Paul, if you've -- you've been involved as well, if you'd add anything to that.

No, I think it's well stated, Sheryl. I think the other piece I would add to that is the partnership with ANZ Bank has been very productive for many, many years. I want to thank -- if anybody's on the call from ANZ Bank, I want to thank you personally and on behalf of the company, for your partnership over a long period of time. And as the company and the business has developed and grown and changed, quite frankly, it's important that we're aligned with -- some of them can work multi-jurisdictional, leverage our greatest assets for capacity. It also really helped drive, with us, efficiencies at a much larger scale. The tech stack at HSBC has that Sheryl and team will use, I think, is quite impressive. It will help us manage our business most effectively ongoing, give us better insight into how to make the, not only the interest costs and the borrowing costs as effective as possible, really help us learn how to best hedge risk across a number of different categories. So really excited to work with that team over the coming years, and really thankful for the concluding of the ANZ Bank relationship as well. Okay. One more. Just one more that came in. I'm going to make sure I respect everybody that writes them in. It says, "You've previously talked about implementing a new ERP system. Where are you at with this rollout? And are there any risks you want to call out?" So I mentioned earlier that we're on time, we're on cost, and we're in scope right now. For anybody that's been on a call -- on this call that's been through a transition, things move rapidly and things can change. I would tell you that from the direct feedback of the partner that we're using, that we have as good a grasp on the challenges, as good an operating culture around solving for challenges proactively, and for those of you who have been through this, the challenges come up. So how would you deal with them and how you react to them, I think, is the most important piece of this. And their feedback to us, as you guys are managing this as about as well or better than anybody we've seen. So that comes down to, quite frankly, the hard work and dedication of our teams in this business. And there's a couple of different approaches when you roll out an ERP system. You can essentially source a partner to do the work for you and then you really leverage outsized resource. You can maybe focus a little more on your own internal resource and use a partner to guide it. And we have a bit of a hybrid model here as it relates to it. And our functional teams globally, right now we're doing double duty. They're operating the business as it exists in our current environment, and they're building with our technical partner how the new system will operate and once we go live. And we just really felt, as a leadership team, and me specifically, I thought it was really important for the people that will do the work ongoing, to have a say at the table to how the system will operate. And so it's been a really beneficial set of operating principles, I think, working proactively and collaboratively with our partner. There's tension. There should be, as we're looking to drive efficiency and drive a system that will not only suit our business now but for the years to come. And our partners should be pushing us on ways to develop a specific -- parts of our ERP system that will help us on that journey. And so look, I think we have a really clean set of risk mitigators at the current time. We're working very proactively down things like data migration, data cleansing, data management, how we're thinking about process flow, where there's no need for individual different processes in different locations. We're achieving that as streamlined as possible and also as repetitive as possible, so that we have less complexity long term as we build our business. So from that standpoint, I think we're managing the challenges reasonably well. We'll keep everybody updated as we develop. But at this stage, a lot of work being done by a lot of people. As Sheryl mentioned, the expense, it's a significant investment for us, but I think it's managed about as well as it can be at the current time. So that's a good question. Thank you for that. I'll just check one more time to make sure the other questions came in. I think that's it. Operator, is there any other questions that have come in via the phone?

There are no fine questions at this time.

Well, I just want to say thank you to everyone who either has joined us and still on the call. We certainly can appreciate the impact of a disappointing result in the first half of this year. By no means do we shy away from responsibility and accountability for that. However, we thought it was really important and critical for you to understand what the team is doing about the challenging environment and the programs and processes we have in place to, not only minimize some of the impact that we saw in calendar '23 and specifically the first half of financial year '24. But more specifically, how we're planning the second half of this year and beyond. And we've built and developed a set of capabilities that I think are yielding results for the company. We have more work to do there, as is noted by our ERP rollout. I think we'll be pleased once the transition to our new banking partner is fully complete, which will happen in several weeks. So look, a lot of structural improvement has been done while we face that challenging demand environment. And I'm pleased by the work on the balance sheet side of things. And even though we're a bit disappointed in the demand environment in the first half, we think we've positioned ourselves well for the second half to make some of our own luck as well as hopefully seeing a turn in spending and improvement in weather and some of the macro factors that help our business. So for those of you that are on the call that are shareholders, I just want to say thank you for your continued support. To our Board. Thank you for your continued guidance and patience. And if any members of our team are listening in, which I hope some are, I want to say thank you for the effort in a very challenging several years, but specifically the first half. And hopefully, as we get through the second half of the year, we start to have a bit of a clear path in front of us. So again, thank you and with that, I'll end the call.